From Laudable List to How to Really Win
The heart of strategy is a matched pair — a place to compete where a company designs an approach that enables it to win. Sadly, most strategic plans do not do so. Rather, they make lists of initiatives which the company will pursue. That is why I am dedicating my 7th Playing to Win/Practitioner Insights piece to From Laudable List to How to Really Win. (Links for the rest of the PTW/PI series can be found here.)
You’ve seen the lists: improve cost structure, increase innovation, get closer to customers, rationalize IT systems, etc. Because strategy is seen as a collection of initiatives, often these get referred to as ‘strategies.’ I.e., “We have five strategies. They are a, b, c, d, and e.” No. A company doesn’t have five strategies: it has one. A strategy is an integrated set of choices that positions a company to win.
Lots of people (bless them!) read Playing to Win and find the five-box strategy cascade compelling. But for many, the instinctive reaction is to simply put their list of initiatives into the How-to-Win (HTW) box and call it a Playing to Win Strategy. In general, the items on the list are truly laudable.
For example, for a packaged food company in a non-US market:
· Increase convenience for the modern homemaker
· Communicate to modern homemakers in ways that resonate with them
· Leverage superior shelf position across all trade channels
· Leverage strong brand equity from our existing from-scratch cooking ingredients
· Develop broad product offering at price points across socioeconomic classes
· Develop taste profile that matches the traditional homemade taste
Or, for a business equipment product producer:
· Co-develop with customers and channels
· Create digital and physical experiences throughout the customer journey
· Create integrated solutions that generate customer value and loyalty
· Optimize yield management
· Lead in the development of new technologies
Or, for the China market for a large multinational:
· Move at China speed with faster cycles
· Create China-unique portfolio with China-specific design
· Lead market in product innovation
· Reposition brand to feature Chinese values
· Integrate channel for one face of company
· Go digital
There are a few important things to note for the practice of strategy in these descriptions of HTW. First, not even one of the seventeen combined items across these three lists can be considered a bad idea. They are all eminently laudable initiatives. Second, the vast majority of the items call for improvement for the company in question — create, optimize, leverage, reposition, integrate. This reinforces the laudability of the items: why not seek to improve? But third, there is very little about actually being better than competition — actually winning. There are hints: one ‘superior’ plus two ‘leads.’ But there are just tiny hints of winning.
Each example, food, business equipment and China market, represents an approach for the company to play better than before, but definitively not for winning. The problem with improving without intent to win is that the winner with whom the company will continue to compete will persist in treating it as a weaker competitor to bully and push around. Consequently, I find that the payoffs to initiatives to improve without an intent to win are typically disappointing. Usually, the financial improvement that is expected does not come to fruition because improving does not solve the myriad problems caused by losing.
A Theory of Competitive Advantage
Missing from the above characteristic examples of laudable-lists-masquerading-as-strategy is an explicit theory of competitive advantage. It is called How-to-Win for a reason. It is not a list of stuff that makes a company better. It is an integrated set of choices that in combination creates a way of winning — where the company has chosen to play. That means being better than, not just better. That means configuring your activities to create either greater value than your competitors for your chosen set of customers or a superior cost structure to your competitors in serving your customers.
There are myriad ways to generate such an advantage: having greater scale, having proprietary technology, having superior customer knowledge, having a superior brand, having superior data, etc. The chosen way must result in superior value or lower cost to serve for the chosen customer set, which is why the choice of Where-to-Play (WTP) is so important for the chosen HTW. These advantages rarely if ever apply to all customers sets — they apply to just some customers.
The best and most long-lived advantages combine more than one superiority in their overall HTW, forcing competitors to match multiple advantages in order to attempt to catch up. Facing such an obstacle, most competitors simply choose to compete elsewhere or in different ways, as with the competitors to Southwest Airlines, Four Seasons Hotels & Resorts, Vanguard Group or Thomson Reuters Westlaw.
With a little bit of nudging the food company did the hard thinking to convert the laudable list above to the explicit theory of advantage below (disguised and genericized somewhat).
The WTP is a generation of homemakers who want to provide their family home-cooked meals but struggle to find the time to cook entirely from scratch. The theory of advantage involves combining an already trusted brand for from-scratch ingredients, with a beloved cooking show that could be leveraged far more, with proprietary understanding of the customer set due to being a broadly leading consumer branded food company, and a distribution advantage stemming from the same breadth and scale.
That is a plausible theory of advantage not just a laudable list. But it isn’t a strategy yet. That is why there are five boxes in the strategy cascade, not just three.
The Reality Check
I call the last two boxes of the strategy cascade the reality check.
The first three boxes, at best, provide a plausible theory of advantage in a given place that meets the winning aspiration. It will only become a reality to the extent that the company is in possession of a distinctive set of capabilities which enables it to achieve the advantage theorized to an extent no competitor can match. If a competitor has the same capabilities, it can match your strategy as soon as it figures out what you are doing with your identical capabilities.
For the food company this means assessing whether, for this segment, the strength of its brand is a capability that provides superiority to the brands competitors could deploy. It means assessing the true strength and applicability of its cooking show to leverage its offerings in this segment. It means demonstrating that its customer understanding capability is really superior and quantifying the true relative benefit of its distribution capability. If these assessments hold up, then the food company has a viable strategy for winning in this space.
Furthermore as I argued in my first PTW/PI, if the company wants to maintain its strategy advantage over time, it needs to develop Management Systems that build and maintain the required Capabilities over time.
When you see your strategy development effort producing a list of laudable initiatives, keep pushing the thinking until you have a plausible theory of competitive advantage. Your goal should be loftier than just improving. The goal should be to be become better than anybody else: that is, to win — in your chosen space. And when you get to the point of a plausible theory of winning, do a thorough reality check on your Capabilities and Management Systems so that you can move forward with confidence that your strategy is real and actionable, not just a hope, because hope is not a strategy!