How Strategy Really Works is a book about strategy, written by A.G. Lafley, former CEO of Procter & Gamble, and Roger Martin, dean of the Rotman School of Management. The book covers the “transformation” of P&G under Lafley and the approach to strategy that informed it.
This approach grew out of the strategy practice at Monitor Company and subsequently became the standard process at P& G. Over the course of our careers, we worked to develop a robust framework around our strategic approach, a way to teach the concepts to others, and a methodology for bringing it to life in an organization. … Ultimately, this is a story about choices, including the choice to create a discipline of strategic thinking and strategic practice within an organization.
What is Strategy?
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.” Strategy therefore requires making explicit choices— to do some things and not others— and building a business around those choices. 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.
Too often CEO’s allow the urgent to cloud out the important. “When an organizational bias for action drives doing, often thinking falls by the wayside.”
Rather than develop strategies, many leaders tend to approach strategy in one of the following ineffective ways:
- they define strategy as a vision;
- they define strategy as a plan;
- they deny that long-term strategy is possible;
- they define strategy as the optimization of the status quo; and
- they define strategy as following best practices.
“These ineffective approaches,” Lafley and Martin argue, “are driven by a misconception of what strategy really is and a reluctance to make truly hard choices.”
While everyone wants to keep options open as long as possible, only making and acting on choices allow you “to win.” Great organization choose to win — tough choices force your hand but, if you let them, they also focus your organization.
When a company sets out to participate, rather than win, it will inevitably fail to make the tough choices and the significant investments that would make winning even a remote possibility.
Playing to win, however, means you might be wrong.
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. … The five choices make up the strategic choice cascade, the foundation of our strategy work and the core of this book.
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.
As you can imagine, in small organizations a single choice cascade might exist, whereas in large organizations multiple “levels of choices and interconnected cascades.” Nested cascades means that choice happens at almost every level in the organization.
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. … Aspirations can be refined and revised over time. However, aspirations shouldn’t change day to day; they exist to consistently align activities within the firm, so should be designed to last for some time.
Where to Play
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.
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.
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.
… 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.
Great strategies allow a certain fit between the where-to-play and how-to-win choices that make the company stronger.
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?
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.
[S]trategy is an iterative process in which all of the moving parts influence one another and must be taken into account together.
The heart of strategy, according to Lafley and Martin, is deciding where to play and determining how you will win there.
What business are you in?
Most companies, if you ask them what business they’re in, will tell you what their product line is or will detail their service offering. Many handheld phone manufacturers, for example, would say they are in the business of making smartphones. They would not likely say that they are in the business of connecting people and enabling communication any place, any time. But that is the business they are actually in— and a smartphone is just one way to accomplish that.
|Still curious? See A Primer on Strategy.|