Playing to win: How strategy really works

by A.G. Lafley

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.

The goal was to create in the OGSM a simple, clear expression of a strategy, a living document that everyone in the business knew and understood. A new OGSM might look something like the one found in table 6-1,

A sample OGSM (objectives, goals, strategy, and measures) statement Objectives Strategy Measures Improve the lives of families by providing consumer-preferred paper products for kitchen and bathroom Be the operating TSR leader in North American tissue/towel and value creator for P&G Where to play: Win in North America Grow Bounty and Charmin margin of leadership Win in supermarket and mass discount channels Build performance, sensory, and value consumer segments How to win: Be lean Get plant/equipment capital spend to xx of sales Reduce inventory by x% Be the choice of consumers Superior base products, prices right Preferred product formats and designs Manage category growth Be the choice of retailers Improve shelf availability and service Develop differentiated shopping solutions Win with the winners Operating TSR progress Share and sales growth progress Profit growth progress Efficiency measures: Capital efficiency Inventory turns Consumer preference measures: Weighted purchase intent Trial, purchase, and loyalty Retailer feedback measures: Key business drivers (distribution, share of shelf, share of merchandising, etc.) Preferred vendor Goals Year-on-year operating TSR > x% x% annual share and sales growth x% annual gross and operating profit margin improvement x% return on capital investments in plant equipment and inventory

At innovation program reviews, the question was, how does the product innovation portfolio fit with where you’re going to play? How does it advance how you’re going to win? In light of the annual operating budget and plan, the question was, are you allocating your dollars and your human resources toward the strategic priorities? The OGSM became the foundation of all manner of discussions, effectively grounding capital allocation, branding, resourcing, and innovation strategies in where to play and how to win.

Strategy is formulated at all levels of the organization, and to be successful, it needs to be clearly communicated at all levels as well. The businesses must communicate their strategies to management (in P&G’s case, through reviews and the OGSM), but management must also communicate the company-level choices to the whole organization. The challenge is to find simple, clear, and compelling ways to do so.

Ask, what are the critical strategic choices that everyone in the organization should know and understand?

In any organization, the choices at the top must be precisely and evocatively stated, so that they are easily understood. Only when the choices are clear and simple can they be acted upon—only then can they effectively shape choices throughout the rest of the organization. These simple strategy messages can capture the very heart of the organization’s intent—and to be effective should be repeated over and over again—to different groups, in different contexts, creating a mantra for the organization.

For measures to be effective, it is crucial to indicate in advance what the expected outcomes are. Be explicit: “The following aspiration, where to play, how to win, capabilities, and management systems should produce the following specific outcomes.” Expected outcomes should be noted in writing, in advance. Specificity is crucial. Rather than stating “increase in market share” or “market leadership,” quantify a thoughtful range within which you would declare success and below which you would not. Without such defined measures, you can fall prey to the human tendency to rationalize any outcome as more or less what you expected.

Every company needs systems to formulate, refine, and clearly communicate the essentials of the strategy choice cascade throughout the company. It needs systems to support and invest in its core capabilities. It needs systems to measure attainment of its goals. These management systems are a key piece of the strategy puzzle. While where to play and how to win represent the heart of strategy, those choices won’t provide sustainable advantage without associated core capabilities that drive competitive advantage and the management systems that support the choices.

Until a set of systems and measures is in place, the strategic choice cascade is incomplete and your strategy job is not done (not that it is ever truly done!).

Don’t stop at capabilities; ask yourself which management systems are needed to foster those capabilities.

I found that clearer, simpler strategies have the best chance of winning, because they can be best understood and internalized by the organization. Strategies that can be explained in a few words are more likely to be empowering and motivating; they make it easier to make subsequent choices and to take action.

As you begin articulating your strategic choice cascade, the obvious place to start is at the top. We’ve argued that it is essential to define a winning aspiration up front, and it does make sense to begin thinking about strategy by defining the purpose of your enterprise; without having an initial definition of winning, it is difficult to assess the value of any subsequent choice. You need a winning aspiration against which you can weigh different choices. 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. To define where to play and how to win, you’ll need to understand and reflect on your context. To do so, you have scores of tools at your disposal—from simple analyses like SWOT (strengths, weaknesses, opportunities, and threats) to purpose-built tools like the Boston Consulting Group growth matrix and General Electric–McKinsey nine-box matrix to detailed frameworks based on particular strategic theories (the VRIN model, which assesses the degree to w...

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? These four dimensions can be understood through a framework we call the strategy logic flow, which poses seven questions across the four dimensions (figure 7-1). The strategy logic flow spurs a thoughtful analysis of your company’s current reality, context, challenges, and opportunities and leads to the development of multiple possible where-to-play and how-to-win choices. FIGURE 7-1 The strategy logic flow The flow runs from left to right as a framing mechanism and a rough order of operations—though as with pretty much everything to do with strategy, a lot of iterative back-and-forth is required.

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 (figure 7-2). Porter’s framework is a very useful aid to understanding the profit potential of markets and segments. FIGURE 7-2 Porter’s five forces Source: Reprinted with permission from On Competition, by Michael E. Porter, Harvard Business School Press, 2008. 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. The horizontal axis determines which entity will cap...

Industries with fewer rivals and with competitors that seek to serve different parts of the market with unique offerings are more attractive than those in which a number of competitors compete fiercely for the same consumers in the same way.

Porter’s five forces help define the fundamental attractiveness of a given industry and its individual segments. Understanding structural attractiveness allows individual managers to determine how to invest in various segments within their business.

Industry analysis also enables a company to migrate its portfolio toward more structurally attractive businesses and away from less attractive ones.

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. Regardless of whether a firm wishes to be a cost leader or a differentiator, it needs to understand precisely what customers (its own and its competitors’ customers) value. This means understanding underlying needs,

In customer value analysis, the company assesses what its channel customers and end consumers really want and need, and what value they derive from the firm’s products and services relative to the costs they incur from buying and using the products or services. For P&G, that means considering both its retail customers (like Walmart, Kroger, and Walgreens) and the consumers who actually buy and use the products. These two groups have different, and sometimes contradictory, benefits and costs. It is essential to understand both types of customers to make sense of and shape the full value equation. Once the value equation is understood, options will naturally begin to emerge for where to play and how to win.

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.

Understanding end consumers is a challenging thing, because you can’t simply ask what they want, need, and value. Recall Henry Ford’s famous quip that if, at the dawn of the automotive industry, he’d asked consumers what they wanted, they would have said, “A faster horse.” To understand the consumer value equation, you must truly get to know your consumers—to engage with them beyond the quantitative survey, through deeper, more personal forms of research—watching them shop, listening to their stories, visiting them at home to observe how they use and evaluate your products. Only through this kind of deep user understanding can you hope to generate insights about where to play and how to win.

ethnographic study of what consumers actually do—rather than what they say they do—is an important step to gaining a deep and holistic understanding of users.

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)? In particular, could you configure your capabilities to enable your company to meet the needs of customers in a distinctively valuable way, underpinning a potential differentiation strategy? Or, at a minimum, could you configure your capabilities to enable the company to match competitors in meeting the needs of customers, underpinning a potential cost-leadership strategy? In other words, how could your capabilities be configured to translate to a measurable, sustainable competitive advantage?

The other half of an analysis of relative position relates to cost and the degree to which the organization can achieve approximate cost parity with competitors or distinctly lower costs than competitors. These are the key questions to consider on this front: does the organization have a scale, branding, or product development advantage that enables it to deliver a superior value offering at the same cost as the cost incurred by competitors? Or, does it have a scale advantage, a learning-curve advantage, a proprietary process, or a technology that enables it to have a superior cost position? The answers to these questions start to put parameters around the myriad how-to-win options.

Thinking through the first six boxes in figure 7-1 should produce a range of potential where-to-play and how-to-win choices. Before even thinking about deciding between these possibilities, you need to evaluate these potential places to play and ways to win for robustness against your current competitive strategies and anticipated competitor reaction. This is the fourth and final element of the logic flow. 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?

Only strategies that provide a sustainable advantage—or a significant lead in developing future advantages—are worth investing in. 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.