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Make the right choices to create a winning strategy
By Kenneth Mikkelsen, Journalist,
What makes good corporate strategy? It’s a question that haunts many leaders. This article explores the five strategic choices that helped the multinational consumer goods company Procter & Gamble turn things around after a serious setback in 2000. I interviewed Roger Martin, the dean of Rotman School of Management, about his new book Playing to Win, which Martin co-authored with former Procter & Gamble CEO Alan G. Lafley.
On 7 March 2000 Procter & Gamble (P&G) sent shockwaves through the business world when it announced that it would not meet its quarterly earnings targets. On what came to be known as ‘Tide Tuesday’, P&G lost 30 per cent of its share value in one day.
In fact, this was just the first leg of a journey that would send P&G into a downward spiral propelled by a growing mistrust among investors. In June, just three months later, things got worse as P&G once again missed its projected earnings target. As a result Durk Jager, the head of the company, resigned with immediate effect. Jager’s replacement was Alan G. Lafley. In an article featured in Harvard Business Review in May 2009, Lafley described the situation he faced as the new CEO of the company:
‘Our biggest problem in the summer of 2000 was not the loss of $85 billion in market capitalization. It was a crisis of confidence. Many of P&G’s leaders had retreated to their bunkers. Business units were blaming headquarters for poor results, and headquarters was blaming the units. Investors and financial analysts were surprised and angry. Employees were calling for heads to roll. Retirees, whose profit-sharing nest eggs had been cut in half, were even angrier.’
Even though Lafley would rightfully challenge the cliché of a CEO in shining armour who rides in and turns things around all by himself, the numbers clearly speak of the transformation that P&G went through while Lafley served as the company’s CEO.
Under Lafley’s leadership from 2000 till 2010, P&G sales doubled, profits quadrupled, market value increased by more than $100 billion, and its portfolio of billion-dollar brands – such as Pampers, Olay, and Gillette – grew from 10 to 24 as a result of P&G’s focus on winning strategic choices, consumer-driven innovation, and reliable, sustainable growth.
Playing to win
The story of P&G’s metamorphosis is intriguing. It is a prime example of a successful turn-around realised through a set of strategic choices. But P&G was not alone in defining these choices. The company drew on the expertise of some of the world’s leading academic thinkers, among them the father of modern management, Peter Drucker, and strategy mastermind Michael Porter. But Lafley’s day-to-day strategy alter ego and confidant was Roger Martin, then a consultant at Monitor Group. Today, he is dean of Rotman School of Management and is honoured as one of the world’s top management thinkers. The relationship between the two men stretches back 25 years.
Recently, Lafley and Martin wrote the book Playing to Win, which tells the story of the strategic choices that founded P&G’s transformation. I sat down with Martin and asked him to share some insights about the framework that transformed P&G and made strategy a part of the culture and thinking of the company.
‘Many people think of strategy as a very complicated thing. That it is sort of a chore, in as much as it is not very enjoyable or useful. The purpose of our book is to make strategy simple, fun, and effective. I don’t want strategy to be complicated, and that is why you’ll see phrases like “Where to Play” and “How to Win.” They are not convoluted or complicated jargon; they are simple. By making it about choices and very few choices, I think you can make it fun and enjoyable to consider those choices, and if you answer those choices, you can have a great and effective strategy. In doing that, what we wanted to do is hone it down; if it is about choices, what are the very few choices that really matter?’ Martin explains.
In Playing to Win Lafley and Martin talk about strategy as a coordinated and integrated set of five choices: identifying a winning aspiration, deciding where to play, working out how to win, defining core capabilities, and recognising what management systems are needed. In reality, it is a thought pattern that people can use to see the bigger picture and ask the right questions as they focus on important strategic decisions.
Strategy is an integrated cascade of choices
Smaller companies may only have a single choice cascade. But in larger companies, there are multiple levels of choices or nested choice cascades at the corporate-level, sector-level, and individual brand-level that all interconnect and influence each other.
‘Strategy would be dead easy if you could answer those questions one at the time and lock and load each as you go. The only tricky thing about strategy is that they all interrelate. They have to fit and you have to reinforce them, which makes strategy less of a lineal project, but rather an iterate one that you have to be comfortable with. Put up a winning aspiration and say: “This is what we think, what we would like to do” – and then figure out where to play, how to win, and how to make that happen. If there isn’t clarity, modify it and keep going back and around,’ Martin emphasises.
The notion that strategy is a way to reduce uncertainties in a fast-paced world doesn’t rest well with Martin. He thinks that uncertainty is an often-used excuse among executives to convince themselves that they are doing the right things by not making the necessary choices.
‘There are control-oriented people who really want it to be true, hope that it is true: that strategy is a way to reduce uncertainty. It is like pushing water uphill – it is always hard to keep water at the top of the hill. So go with the flow, instead of trying to get rid of uncertainty, understand that there will be uncertainty. That, I think, is a more healthy approach.’
The five basic questions outlined in Playing to Win were used rigorously to guide P&G’s strategy. In June 2000, when Lafley became the CEO, the company was over-invested and overextended. It wasn’t winning with those who mattered most – consumers and customers. According to the authors, the first question – What is our winning aspiration? is the heart of any strategy and sets the frame for all the other choices. A company must seek to win in a particular place and in a particular way. If it doesn’t seek to win, it’s wasting its resources. But to be most helpful, the abstract concept of winning should be translated into defined aspirations: statements about the ideal future.
‘We used the word “winning” because we really feel it is important … to try and win. Not because we like the idea of beating other people; it is not some joy of grinding other people into dust, but winning means that for the customers you serve, you have a better value proposition than anybody else. That doesn’t mean you are going to crush all your competitors. There will be competitors that will have other customers, other than your customers, that will like them better than you. And that is absolutely fine. A winning aspiration is not just to play better than we used to play,’ Martin explains.
Playing to Win tells the story of Olay, a skin-care brand in P&G’s portfolio that was struggling in the late 1990s. It experienced a declining market share and was broadly perceived as old-fashioned by consumers – until P&G decided to tweak its strategy. For Olay, the winning aspirations were market-share leadership in North America, $1billion in sales, and a global share that placed it among the market leaders.
Winning aspiration dos and don’ts
Where to play
The choice of ‘where to play’ defines the playing field for a company. It is a question of what business you are really in. It is a choice about where to compete and where not to compete. Basically, it is about understanding that you can’t be all things to all people if you want to be successful. To define this choice, leaders must look for answers in various domains such as geography, specific products and services, consumer segments, distribution channels, and value chains. It is a discipline that requires a steadfast focus and a thorough examination of the market playing field.
‘It is an important question – maybe the most under-recognised question in strategy, in my view. Most companies seem to view “where to play” as sort of ordained by God. Like, “Everyone in the industry plays this way, therefore we shall do it too”. Many of the cleverest decisions that are made strategically involve picking a “where to play” that is different from others – and by being different you can win there. In the case of Olay, we shifted the “where to play” from women aged 50 and above seeking a wrinkle treatment to women aged 35–50 fighting the first seven signs of skin ageing. And that made all the difference in the world. So, those “where to play” choices are non-trivial and can make a big difference, and they are subtle,’ says Martin.
‘Where to play’ dos and don’ts
How to win
‘Where to play’ and ‘how to win’ choices complement each other like salt and pepper. To determine ‘how to win’, any organisation must decide what will enable it to create unique value and sustainably deliver that value to customers in a way that is distinct from its competitors. This is what Michael Porter famously coined as a company’s competitive advantage. For Olay, this resulted in a complete makeover. The ‘how to win’ choices were to formulate genuinely better skincare products that appear to fight the signs of ageing, and to create a powerful marketing campaign that clearly established Olay as the best product on the market. This also involved a new package design and re-calibrating the price of the product.
‘“How to win” is about creating a superior value equation for the customer. In the case of Olay, the “how to win” was to create a masstige experience in the normal mass channel. This meant creating a product of the sort that customers would buy for a high price in the prestige channel – with the quality, the packaging, and shelf presence that they would find in the prestige channel, but in the mass channel,’ Martin explains.
The masstige experience that Martin refers to was P&G’s strategy to bridge the mass and prestige markets and sell Olay in discount stores, drugstores and grocery stores, rather than entering the prestige market and selling through department and specialty stores.
‘How to win’ dos and don’ts
Capabilities are the map of activities and competencies that critically underpin specific ‘where to play’ and ‘how to win’ choices. Without them no strategy will succeed. In the case of Olay, that meant putting together a team of people from both inside and outside the company with cutting-edge expertise in packaging and marketing. This also involved forming partnerships with designers.
‘This question relates to the capabilities P&G needed to have in place in order to win where they had chosen to play, and to meet their winning aspirations. In that case we had to develop some capabilities on producing better active ingredients that allowed us to compete with the prestige brands. But we also had to develop capabilities to work with the retailers to create a masstige type of experience in those stores,’ says Martin.
The choice of bringing in people from outside P&G wasn’t just practised in the case of Olay. As CEO, Lafley challenged the company to reinvent its innovation business model by merging P&G’s internal resources with outside open innovation, referred to as Connect + Develop. At the time P&G estimated that for every P&G researcher there were 200 scientists or engineers elsewhere in the world who were just as good – a total of perhaps 1.5 million people whose talents they could potentially tap into. P&G didn’t just ‘do the math’, they also acted on it when Lafley proclaimed that half of the company’s new products would come from P&G’s own labs, and half would come through them. Implementing that approach has later made P&G a well-documented archetype for open innovation.
‘What Lafley saw in that capabilities box was: “Wow, do we ever have some fantastic capabilities, but we also have significant voids.” So what do we do? Do we build all of them ourselves or do we connect and develop on some of them? Do we outsource things? That really was an obsession about him. He loves P&G and he loves P&G people. But the thing he loves least is when they get closed in on thinking: “We are the only people who know the right answer.” He can’t stand that as an attitude,’ explains Martin.
Building capabilities dos and don’ts
Manage what matters
Operating a strategy without established management systems and supporting structures is a guaranteed recipe for failure, according to Martin and Lafley. To truly win in the marketplace, a company needs to put in place a robust management system in order to foster, support, and measure the strategy. These management systems are needed to complete the strategic choice cascade and ensure effective action throughout the organisation. Martin often experienced that the aspects of capabilities and management systems collide with the positioning strategy.
‘In the world of strategy, there is this big war between the capabilities-orientated people, who have a resourced-based view of a firm, and the positioning people, who focus more on the “where to play” and “how to win”. I think what manifests in our model of thinking about strategy is that it is obviously both. The fact that the academic world spent much of its time in a big food fight over which it is, is sort of indicative of the siloization and compartmentalisation of complex problems. In my mind you just cannot be an intelligent positioning strategist or an intelligent capabilities-based viewer of strategy; neither of those are possible. You actually have to have both sides if you want to be an intelligent strategist,’ Martin argues.
P&G attacked this by establishing a new human resources approach and developed detailed tracking systems to determine consumer response. At the same time a tremendous effort was made to simplify the strategy dialogue, and enhance the employees’ understanding of the innovation process. This involved fostering an assertive inquiry culture, where people not only expressed their own thinking, but also explored the thinking of others. In the case of Olay, the five choices paid off as it grew from a struggling $800 million brand into a $2.5 billion brand.
Management systems and measures dos and don’ts
Leadership lessons from P&G
Having worked for more than 25 years as an outside strategy consultant for P&G, Martin has a unique understanding of what others can learn from the company’s quest to embed strategy as an integrated part of the culture and way of thinking. In Martin’s mind, the best companies constantly focus on staying relevant in the eyes of the customers and keeping things simple.
‘One of the leadership lessons from P&G is being willing to tackle things in a holistic fashion. Locking and loading on something and then moving to the next thing and the next thing rarely gets you what you really want. The other lesson is that in the end you have to make things simple. Organisations do not win on the basis of complicated strategies. Yes, it takes some complicated thinking and willingness to have a bunch of balls in the air for a time. But in the end if things aren’t really clear, you are not going to be able to motivate a large organisation to do something useful. Using really simplifying kind of catch phrases like “the consumer is boss” and “we have to win at the first moment of truth” along with “where to play” and “how to win” were very important in P&G. I think a leader needs to think about how you get things down to that level so that everybody understands the consumer is boss – and if we’re not out talking to her, really understanding her, and listening to her, we will never win,’ Martin outlines.
Challenging the way leaders think is a common thread throughout Playing to Win, but it also ties in with previous books that Martin has written. Good management is about nothing if not good decision making, and according to Martin successful business people engage in what he calls integrative thinking – the ability to use deductive reasoning to extract the best aspects from two conflicting ideas to come up with an alternative, which incorporates the strengths of both ideas. Integrative thinking is a prerequisite for making sound choices as a leader and figuring out the right strategy.
‘There is a theme that runs through all my books – in Opposable Mind, The Design of Business, and Playing to Win for sure, which is about how we think. Sadly, most of us spend our careers being taught about how to problem-solve and the real question is problem-framing. I think that great strategy comes out of people having an opposable mind; not settling for the either/or that everybody else does; aiming for something high; creating something that does not now exist; and understanding that their job is not just to choose among existing options. Those are the big pieces of the puzzle for a successful executive,’ Martin finishes.
About Roger Martin
Roger Martin has served as dean of the Rotman School of Management at the University of Toronto since 1998. He is an adviser to CEOs of several major global corporations on strategy, design, innovation, and integrative thinking, including the successful Danish-based toy company Lego, who recently announced a record result.
He has published numerous books, including: Fixing the Game, Bubbles, Crashes, and What Capitalism Can Learn From the NFL, The Design of Business: Why Design Thinking is the Next Competitive Advantage, The Opposable Mind: How Successful Leaders Win Through Integrative Thinking, The Responsibility Virus: How Control Freaks, Shrinking Violets –and The Rest Of Us – Can Harness The Power Of True Partnership, The Future of the MBA: Designing the Thinker of the Future, and DiaMinds: Decoding the Mental Habits of Successful Thinkers.
In 2011 Roger Martin placed sixth on the Thinkers50 list, a biannual ranking of the world’s most influential business thinkers.
- You can download a free chapter of Playing to Win here.
- Further information: Roger Martin’s website.
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