Are you playing the game or are you playing to win? Chances are your competitors are doing the latter. Develop a winning strategy for your company, business unit, or new product launch with former Procter & Gamble CEO A.G. Lafley and co-author, Roger L. Martin's recipe for success.
Lafley and Martin lay out the simple steps of strategy in the form of five questions, the most important of which are "Where to play?" and "How to win?" Once those decisions are made, develop the core capabilities and management systems to support them. Use this book summary as a guide to set a competitive business strategy and distinguish your organization from others.
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In Playing to Win: How Strategy Really Works, former P&G CEO A.G. Lafley details how to develop and implement a successful strategy for your business, with a cornerstone principle which stresses the importance of playing to win, not just playing the game. A winning aspiration focused on customer needs' satisfaction is the beginning, but the most essential questions follow: Where will you play, and how will you win there? According to Lafley, all these choices should be well-researched, data-driven, and considered in light of competitor behavior. Lastly, to implement the strategy, a business needs to identify and develop core capabilities and take a management approach that supports a culture of strategy overall.
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Some companies articulate their winning aspiration and call that the strategy. Defining the winning aspiration is a necessary part of the strategy, but it is only the first step. These statements may include metrics such as revenue, profitability, and market share, but those numbers will be second to words and phrases that describe your customer and how you aim to serve them. Without the customer at the center, the other aims are futile. For example, rather than saying they have a market-leading, profitable skin care line, P&G 's winning aspiration could be "helping women have healthier, younger-looking skin" or "helping women feel beautiful."
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Companies or executives who've become too focused on product features and performance have "marketing myopia," which means they are "blinded by the products they make and are unable to see the larger purpose or true market dynamics." The people your products serve should always remain top of mind, or the winning aspiration will become stale. Because a winning aspiration is only the start of a comprehensive strategy, it can and should remain generalized. Answering the four other strategy questions will provide the necessary detail. Some examples include:
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Empowering individual business units to set their own winning aspirations can transform all aspects of an organization, even units that don't sell externally. For example, P&G created an internal entity called "Global Business Services" that provided services like information technology support, facilities management, and employee services to P&G business units worldwide. The business model was financially healthy, but P&G leaders focused on winning had a higher standard for GBS.
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Filippo Passerini was in charge of GBS and determined that in its field, GBS wasn't really winning. He wasn't confident that as currently structured, GBS was creating the most value for P&G. What if they spun GBS off and functioned as a separate entity providing services to other companies? What if they dissolved GBS and contracted with a company that would handle the different services independently?
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These were the sole options on the table for a time until Passerini pitched another approach. To have a winning strategy for providing services to P&G business units might mean a combination approach. The ability to get the best services, at the lowest costs, with the greatest additional benefits, meant contracting with more than one service provider in a "best of breed" approach rather than a single conglomerate, which was the prevailing model at the time.
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"Passerini saw that specialization could increase the quality and lower the cost of BPO solutions…Plus, there was risk mitigation in having multiple partners, and they could be benchmarked against one another…Finally, outsourcing would free up remaining GBS resources to invest in P&G core capabilities," the book explains.
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Aspiring to win requires much more than obtaining a majority market share. It means truly understanding customers and not losing sight of their needs. It means not just "playing to play" or get the job done but instead, always looking for ways to generate more value for both customers and your firm.
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Though "where" connotes geography, the question of where to play to deliver on a winning aspiration includes five categories: 1) geography; 2) product type; 3) consumer segment; 4) distribution channel; and 5) vertical stage of production. To employ a sound strategy means to gather extensive information in each of these areas and to make a conscious choice along each parameter.
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Here are some other vital questions to consider when developing your strategy. Which geographies are the biggest and most profitable markets, or are there certain countries where your firm has experience and expertise? What product types are in demand, or what product or service choice will enable a distinct advantage and command high margins for the longest time? How are consumers segmented, and which segment is most attractive? Is there a natural channel choice or one in which customers are accustomed to buying? And, what might be the benefits of expanding operations into different levels of the value chain?
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Some of these five "where to play" choices will hold different weights depending on the situation and company at hand. For example, startups spend lots of time developing and refining a specific product or service. A mature company seeing little growth might rejuvenate sales by re-analyzing their consumer segmentation to find pockets of growth. Across the five "where to play" questions, the most important consideration is analyzing both the quantitative and qualitative data in light of your current goals and capabilities, making conscious choices that reflect your winning aspiration.
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P&G began every effort to determine the "where to play" choices with an in-depth exercise to understand the consumer.
"Only through a concerted effort to understand the consumer, her needs, and the way in which P&G can best serve those needs is it possible to effectively determine where to play – which businesses to enter or leave, which products to sell, which markets to prioritize, and so on." P&G had a robust consumer research arm in-house to conduct qualitative studies like home visits, but they outsourced surveys and other quantitative research.
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In considering "where to play," don't just go for the lowest hanging fruit. A market that may otherwise look competitive and daunting may be a good choice for your firm if the offering is truly distinctive, and the entry strategy is smart. In 1984, laundry detergent was primarily powdered. Unilever's Wisk brand was blazing the trail with an innovative liquid form. When Tide decided to enter as Liquid Tide, they knew they were going up against a strong competitor. But P&G executives had chosen "where to play" based on predictions that liquid detergent would experience strong overall growth. Therefore, though "Wisk did not give up a share point to Liquid Tide," the market grew overall, and Liquid Tide brought new liquid detergent customers into the field. "Liquid Tide created new consumers for liquid detergent, and none of them had a loyalty to Wisk."
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Answering the "where to play" questions is a steep task, but defining "how to win" is just as important. "Winning means providing a better consumer and customer value equation than your competitors do, and providing it on a sustainable basis," the authors state.
Products and services "win" when they are either differentiated (and can charge price premiums), or when they have "cost leadership" and can offer a nearly similar product to competitive offerings but charge significantly less. Due to its size and scale, P&G can keep production costs low and charge competitive prices. But it primarily competes as a differentiator, seeking to find the new product technology or customer segment that is untapped or unserved. Achieving this requires a robust research and development arm, as well as a deep understanding of customers' behavior. P&G has both.
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Gain was a struggling P&G laundry detergent product. Its brand manager at one point pleaded with the CEO to kill the brand. The Gain brand was virtually out of business when management asked the team to give it "one more try." The team started by analyzing the consumer segments for laundry detergent to uncover insights about how to win. They discovered that "a small but passionate group of consumers wasn't well served by Tide or by any other competitive product. "This segment cared very much about the sensory laundry experience – about the scent of the product in the box, the scent during the washing process, and especially the scent of clean clothes."
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Gain product executives decided that they could win in laundry detergent, in their own way, by becoming the product to meet this need. This shift required a concerted effort to re-brand and improve the product to meet the expectations of this segment. Designers re-thought the packaging to make it vibrant, busy, and unmistakably bold. Scent and the sensory experience of using Gain were featured prominently in advertising and stores. Gain is now a billion dollar brand.
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Gain is an example of invigorating a stagnant brand by analyzing "how to win" in a specific consumer segment. Pampers diapers are another example of how P&G discovered how to win, but this time, in a new geography. Executives had decided to expand Pampers into Asia but struggled with how to feasibly sell the product at a price point that would resonate with consumers there. Typically, when entering an emerging market, executives would decide on one of two approaches to product design, both strategies aimed at keeping product costs low to make selling at a lower price feasible. The first is the "trickle-down" approach, whereby product innovations are only introduced to emerging markets after their distinguishing technology had grown stale elsewhere. The second tactic was a "bare-bones" method in which designers strip away many of the premium product attributes, leaving an affordable yet subpar product. But P&G had a different idea for diapers in Asia.
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Instead of choosing one of the two expected options, P&G executives took a third approach. This method was in keeping with P&G's standard practices elsewhere in the company – "start with the consumer." Rather than delivering an outdated or subpar product in Asia, they decided to learn as much as they could about the habits and practices of diapering babies in Asia. The executive in charge urged her team, saying "Let's find out what those consumers actually need and build that diaper. You only build what they need; you don't build all the bells and whistles that only consumers in developed markets expect." The team found that winning in diapers in Asia required making a diaper that could be sold for about the price of an egg. They repositioned their marketing to highlight how disposable diapers can improve cleanliness, reduce disease, and help babies get a better night's sleep. The simpler product at a reasonable price point, together with the brand repositioning, meant P&G's Pampers were positioned to win in Asia.
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According to Lafley and Martin, "Capabilities are the map of activities and competencies that critically underpin specific where-to-play and how-to-win choices."
The capabilities that your firm will need to execute a successful strategy naturally flow from your choices about where to play and how to win there. Examples of these capabilities include branding and marketing, channel relationships and distribution networks, or industrial design and manufacturing. As a new strategy is launched, laying out a plan to develop or acquire the capabilities required is paramount. Lafley outlines the five core capabilities that P&G leverages. These all come into play in some fashion throughout P&G's strategy-setting exercises.
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Lafley as CEO and other senior executives at P&G were becoming increasingly frustrated with business unit leaders who, during annual strategy review meetings, would bring endless PowerPoint presentations and an ironclad argument as to why the chosen strategy was the way to go. Where were the frank discussions and honest dialogue?
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Per the book, "Unfortunately, the management teams had been trained over decades to see strategy reviews as anything but an opportunity to share ideas. Traditionally, it had been their job to build an unimpeachable plan and to defend it to the death."
CEO Lafley had experienced enough of these meetings and decided to shift the culture to make strategy a core part of P&G's culture. Here are a few key changes he made.