Sachin Rekhi

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.

Roger Martin knows strategy. Both from his experience as a strategic advisor at the Monitor Company to clients like Procter & Gamble, Lego, and Verizon as well as former business professor at the Rotman School of Management at University of Toronto. He ultimately captured his decades of lessons learned on strategy in his popular book, Playing to Win.

Martin's core thesis is that an effective strategy requires a coordinated and integrated set of five choices: a winning aspiration, where to play, how to win, core capabilities, and management systems.

Winning aspiration
A winning aspiration defines the purpose of your organization and it's motivating aspiration. It's a statement about the ideal future. Aspirations shouldn't change day to day, since they exist to consistently align activities within the firm, and so should be designed to last for some time.

At the brand Olay, the winning aspirations were defined as market share leadership in North America, $1 billion in sales, and a global share that put the brand among the market leaders.

Martin believes that having a winning aspiration is critical for success. In his view, when companies set out to participate in a market instead of winning that market, they will inevitably fail to make the tough choices and the significant investment that would make winning even a remote possibility. Too many companies eventually die a death of modest aspirations.

Where to play
The next critical choice is picking the playing field where you can achieve that aspiration. Here you are specifically narrowing the competitive field that you will focus on. No company can be all things to all people and still win, so it's important to understand which where-to-play choices will best enable your company to win.

In particular, the choices you need to make are:

• Geography - In what countries or regions will you seek to compete?
  
• Product type - What kinds of products and services will you offer?
  
• Consumer segment - What groups of consumers will you target? In which price tier? Meeting which consumer needs?
  
• Distribution channel - How will you reach your customers? What channels will you use?
  
• Vertical stage of production - In what stages of production will you engage? Where along the value chain? How broadly or narrowly?

When making your where-to-play choices, you'll not only need to leverage your deep understanding of your customers as well as your own capabilities, but also carefully consider your competition. Oftentimes it makes more sense to avoid head-to-head combat with an incumbent and instead find an under-served need or different product approach to tackling the market. At other times, head to head competition may make sense when you have new and distinctive value you can bring to bear against the incumbent.

Take, for example, the Bounty paper towel brand. P&G identified three core customer segments. The first segment cared about strength and absorbency, which Bounty's original product served well. They then identified a second segment that cared mostly about how soft the paper towels were. Bounty decided to pursue this segment by creating a product extension known as Bounty Extra Soft. The third segment cared primarily about price. Bounty realized it couldn't serve this segment well without devaluing it's brand so made the strategic choice to not focus on it. These specific where-to-play choices enabled the Bounty brand to continue to gain market share in its most lucrative North American market.

How to win
The third critical choice is how you'll win in your chosen playing field. It is the recipe for success in your chosen segments, categories, channels, and geographies. Your how-to-win choices are therefore intimately tied to your where-to-play choices.

All successful how-to-win choices boil down to one of the two approaches: cost leadership or differentiation.

In cost leadership, you develop a cost advantage relative to your competition. This can be done through cost leadership in sourcing, design, production, distribution, and so on. When you have that cost leadership, you may choose to leverage it to reduce your prices. But you can also use your extra margin in alternative ways that create competitive advantage. Take for example Mars candy bars, which has a cost advantage compared to Hershey's candy bars. Instead of using that cost advantage to reduce its price, it instead used it's extra margin to purchase the best shelf space in the candy bar rack in every convenience store in America.

In differentiation, your goal is to offer products or services that are perceived to be distinctively more valuable to customers than competitive offerings and are able to do so with approximately the same cost structure as your competitors. This differentiation can be driven by product design, product performance, quality, branding, advertising, distribution, and more.

It's very difficult to be both a cost leader and a differentiator, as the culture within these organizations often differ drastically. Cost leaders are forever looking to better understand the drivers of costs and are modifying their operations accordingly. Differentiators are forever attempting to deepen their holistic understanding of customers to learn how to serve them more distinctively.

It's important to understand that there isn't one "right" strategy in a given market. Instead there are typically multiple ways to win in almost any industry. So it's important to find the particular how-to-win approach that will work uniquely well for your customers, your organization, and your relative position to the competition.

Core capabilities
The next set of choices are the set and configuration of capabilities required to win in your chosen way. Capabilities are the map of activities and competencies that critically underpin specific where-to-play and how-to-win choices.

These activities are best understood as a system of reinforcing activities. Competitive advantage arises from the collection of and fit between each activity.

The reason to identify these core capabilities is to enable you to disproportionally invest in building out those capabilities that produce competitive advantage and invest less or outsource those that do not.

At Procter & Gamble the core capabilities they focused on developing were deep consumer understanding, innovation, brand building, go-to-market ability, and global scaling.

Now your core capabilities need not always be tied directly to your existing organization strengths. This is because those strengths might turn out not to support your where-to-play and how-to-win choices. In those cases the effort becomes identifying the core capabilities that you need to develop in order for your to succeed in your chosen playing field.

Management systems
The final set of choices are determining the systems that foster, support, and measure the strategy. Typically you need to establish three types of management systems:

• Robust processes for creating, reviewing, and communicating strategy - These are often carefully crafted strategy review meetings that enable building the strategic thinking capability amongst a leadership team. The ideal format creates a culture of inquiry that surfaces productive tensions to inform smarter choices.
  
• Structures to support core capabilities - These are systems that really help you develop your core capabilities. At P&G, for example, they invest heavily in new consumer-research methodologies in an effort to lead the industry with real in-house consumer and market research capability.
  
• Specific measures to ensure that the strategy is working - Measurement helps to provide both focus and feedback. Focus comes from an awareness that outcomes will be examined, creating a personal incentive to perform them well. And feedback comes from the fact that measurement allows the comparison of expected outcomes with actual outcomes and enables you to adjust your strategic choices accordingly. These measures should span financial, consumer, and internal dimensions to prevent the team from over-focusing on any one dimension.

Next time you are putting together a product strategy, I'd encourage you to define it in terms of Martin's 5 critical choices: a winning aspiration, where to play, how to win, core capabilities, and management systems.