February 12, 2014

Here's What Business Strategy Is Really All About (review)

Chess Board
Recently, I was booked to give the closing keynote at an annual corporate meeting for an industry leader.  Their CEO had a vision for the meeting: Create A Mindset Where Winning Is the Only Acceptable Outcome.  She picked me because I'd worked at a company (Yahoo) that famously developed this outlook, then lost it over time. 

I was intrigued by this assignment, and immediately thought of lessons learned from studying Paul Galvin of Motorola (video clip from one of my talks about him).  Researching post-Galvin case studies led me to A.G. Lafley's days at Procter and Gamble and ultimately his book, Playing To Win: How Strategy Really Works.

Lafley believes that strategy is "an integrated set of choices about how to win in the marketplace." In other words, strategy is not about accomplishing a certain task or reaching a certain goal.  Those are tactics.  Being strategic is about making the hard choices to achieve a sustainable competitive advantage in the eyes of customers.  

He's got an attitude about leaders that see it any other way.  He picks on companies like Saturn, a GM division, that was 'Playing for the sake of playing.'  They never intended on beating the Japanese at their game.  They just wanted to sell cars in 'the low end of the market,' so Saturn was created.  They were not resourced to outperform Toyota, Honda, Nissan, Kia or Hyundai, and eventually, the division was shuttered.  

He's even harder on leaders that Play To Survive.  In his view, "a company must seek to win in a particular place and in a particular way.  If it doesn't seek to win, it is wasting the time of its and the investments of its capital providers."  He's right too.  Around 2003, I witnessed the Yahoo culture shift from winning to "hanging in there".  This was the beginning of the sideways years for the company. We watched competitors like Google leapfrog us with moonshots (Google Earth), while we played it safe by incrementally improving products (Click To Print Map).  

Over and over again, Lafley stresses the choices leaders must make in their strategy.  The first choice is 'What is our winning aspiration?' which leads to a cascade of choices which build on each other.

           080313-strategy1

I like this cascade (based on the work of Michael Porter, one of Lafley's mentors).  It starts with our aspiration or purpose, which according to Jim Collins, should be audacious.  Lafley points out that "too many companies eventually die a death of modest aspirations."  They made modest choices that the beginning of the strategy cascade, which then led to market-mediocrity.

Then, the second strategic choice is location - where are we going to win?  This narrows the market, sometimes to a specific niche where a true winning opportunity lies.  Narrowing the market is a hard choice for many, making it even more strategic. But to narrow the market is to narrow the scope of competition as well - making it easier to win.

The next difficult choice has to do with our weapons in the market, the sources of our competitive advantage.  In Lafley's view, they need to relate to the perceived value the company delivers to its most important customers.  Then, the next choice is about which resources need to be marshaled to deliver that competitive advantage over time.  Finally, choices about management systems are made to ensure a high degree of operating excellence.  This is a great exercise for any business leader or entrepreneur thinking through their strategy.  Each choice is limiting, and serves to give the company a true sense of focus. 

One of his stinging points is that "Too many leaders define strategy as the optimization of the status quo." In his view, this leads to sameness, which is not a strategy but "a recipe for mediocrity." 

To Lafley's cascade, I added a six element: How Do We Close Value Gaps? This is based on the work of Sandra Vandermerwe in her book Customer Capitalism.  Stanley Marcus Jr. told me about this book back in 1999 when he was sharing a case study about the Mercedes Smart Car launch in Europe.  

The idea is that you can't lock in a customer anymore with contracts or proprietary technology.  Your efforts to do so have decreasing returns over time.  The key to winning over time is to get the customer to lock on to your company that solving all their problems in the activity space.  For Mercedes' Smart car launch, the activity space they focused on was short haul mobility.  The car was designed for trips up to about 100 kilometers at most.  For such a specific activity focus, there are obviously value gaps that they need to close: Repair, Renting a bigger car, Insurance, Maintenance and so on.  

Here's the idea: Each value gap is an opportunity for a competitor to enter your customer's life and steal them.  If you've rented a car at Avis, for example, you likely drove a GM product such as a Malibu or an Impala.  If you drive another brand, that's an example of a value gap they didn't close, which might lead you to switch later.  Mercedes anticipated this in their strategy, so they provided rental car services to close that gap.  

ValueGap

For my keynote, I used a more contemporary example from the medical care industry.  For Baxter Healthcare's Renal Bag product line, they built a strategy around the activity space of maintaining kidney health.  As they built a wining strategy, they realized that the customer has pre-during-post needs.  Up until then, they only played in the 'during' phase, where their bags were part of treatment. 

From pre-treatment advice to post-treatment therapy, Baxter had value gaps a competitor could drive a truck through - dropping off samples of a competitive core product.  So the team built or partnered their way into an airtight approach to the market, which served the activity space with their product serving as a piece of the puzzle and not a commodity. 

  BaxterCC

My audience was intrigued and provoked into action at the same time.  Several focused on choice #2 (where do we win?) and #6 (how do we close value gaps?) as key questions to answer quickly in order to protect their winning hand.  

My closing words echoed Lafley's perspective: If you are not playing to win, at best case, you are losing a little more each day. It's a matter of tough choices about the things that matter ... to the customer.  

Posted at 6:24 AM in Books , Business Effectiveness , Leadership  |  Permalink  |  Comments (3)  |  TrackBack (0)

Comments

Commentor

Any strategy that's too complicated to execute isn't a strategy -- it's a book report. Here are three steps for breaking down complex strategies into actionable, executable steps.

Commentor

Caleb -

Lafley's definition of winning is centered around the customer's perception that the company is the best possible provider in the world. He also believes that it's a soul-sucking existence for employees to work at a company not bent on winning in this way.

Tim

Commentor

Love this Tim!

The whole focus on winning I think takes us both away from the needs of the customers and the interests of the staff. Short term share price focus, desperate increased revenue, competition destroyed often result in today's revolutionaries becoming tomorrow's dictators.

Holding the balance of 'winning' yet looking after the people involved is such a hard balance. What companies do you feel do this well?


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