Playing To Win
The Best Strategy Icebreaker
Reverse-Engineering the Strategy of Your Competitors
Apparently, I have mentioned on various podcasts that reverse-engineering the strategy of your competitors is a good idea. I know that I have because various people have reached out to ask about why and how to do it. So, I have decided to do a Playing to Win/Practitioner Insights (PTW/PI) piece on The Best Strategy Icebreaker: Reverse-Engineering the Strategy of Your Competitors. All previous PTW/PI can be found here.
Previously in this Series…
Three times before in the PTW/PI series, I have talked about studying your competitors. In Benchmarking is for Losers: Don’t Let it Crowd-Out Strategy, I warned against studying competitors to replicate them and converge on their position. And in The Tragic Futility of Investing to Catch Up: Why Investing to Win is Your Only Fruitful Strategy Choice, I explained why — because attempting to copy and converge will almost always leave you a little behind and with disappointing results from all of your efforts.
But I did affirm the value of studying your competitors in Strategy & Competitors: Should We Pay Attention to Them? I believe it can add real value if you study your competitors with the explicit purpose of searching for insights that you can apply to your own unique strategy. For example, by observing and studying early competitors in online news, Financial Times gained insights that enabled it to create an online offering that has helped the company survive and thrive — while virtually every other newspaper has been economically annihilated. Did Financial Times copy competitors? Not at all. But it mined their business models for valuable insights.
So, while studying to benchmark and replicate competitors is dangerous, studying them for insights into customers, technologies, and emerging market dynamics is a great thing for strategy.
A Great Icebreaker
I find that reverse-engineering the strategy of a key competitor using the Strategy Choice Cascade is a great way to kick off a strategy process with an executive team. I use it often to great effect. My experience is that executives love to do it. For most, strategy is an abstract thing, somewhat scary to some and obscure to many more. That is one reason why many default to planning — i.e., the easy task of creating a list of unrelated initiatives.
In contrast, executives tend to find reverse-engineering a competitor’s strategy to be a fun and practical exercise. Plus, it illustrates for them how the Strategy Choice Cascade works — giving them helpful practice on it.
Some ask why don’t I start with reverse-engineering the company’s own strategy? There would be some advantages to it. But the downside is that it tends to be overly contentious — and therefore not so much fun, and I want strategy to start out as a fun thing. It is contentious because executives tend to have much stronger opinions as to their own strategy than competitors’ and will argue strongly for their points of view. And there is often defensiveness because various decisions about the strategy were made by the executives in the room. In due course, we will dive into it, but at the start is not helpful to building positive momentum.
I always ask them to reverse-engineer a company for which they have high respect — their most formidable competitor. I do that because the reverse-engineering will be more interesting and produce more learning about strategy choice. That is because if you pick an average company, it is likely to have not made any true strategic choices. A choice is not strategic unless the opposite is not stupid on its face. If you are making choices for which the opposite is stupid on its face, that is an operating imperative not a strategic choice. A company that simply follows all the operating imperatives in its industry will be an average performer. It is boring to study, and you won’t learn anything about strategy from studying it — other than don’t do what it is doing.
Sometimes I have an entire team reverse-engineer a single competitor as an icebreaker — I remember doing that the first time I used the technique many years ago with the executive team of The North Face — and they chose Nike and learned a lot. I did it recently with a larger team from a diversified aerospace components manufacturer and each table picked a different competitor to reverse-engineer. They loved it. It was hard for me to bring the exercise to a close.
My instruction is to search for insights from choices the competitor has made to be distinctive, how those choices have helped it achieve extraordinary outcomes, and how we could use those insights differently. That is to inoculate against converging to an outstanding competitor — thinking that if they do, they will experience similar outcomes, which is perhaps the greatest strategic delusion.
How to Reverse-Engineer a Competitor Strategy
In turning to the question of how do you reverse-engineer a competitor strategy, I follow three principles:
First, make sure that you focus on what the company does, not what it says. As I have written before, strategy is what you DO, not what you SAY. Strategy statements typically have little or nothing to do with strategy. So, don’t start with the competitor statements. Don’t go to its investor day deck and assume the deck describes its strategy. Most of the time, it has little to do with their strategy. There are, of course, exceptions — but they prove the rule. Focus instead on what it does — what is observable through actions.
Second, don’t start with Winning Aspiration (WA) even though it is the first box on the Strategy Choice Cascade. The real WA is not directly observable. It can only be inferred. Start with the most observable — which is the Where-to-Play/How-to-Win combination — and then fill out the rest.
Third, focus on the differences with all its competitors — including you — not the similarities. The similarities are uninteresting because they are reflective of operating imperatives. Differences reflect strategy choices — focus on them.
Where to Play (WTP)
What is notable about where the competitor choices to compete? In what way can you characterize its WTP distinctiveness? It is not inconceivable that there might be none — the distinctiveness may be in other parts of the strategy choice cascade, but that is relatively rare.
1) What is the offering itself — i.e. the product/service?
2) Is the offering aimed at some customer segments versus others? E.g., is it aimed at customers interested in a higher price option or a lower price option? Is it aimed a small proportion of the customers or a broad array?
3) Is it offered through a particular distribution channel? If so, which? If not, does it sell directly to the end-customer?
4) Into what geographies is the offer sold? Is it local, regional, national, international or global? Is there anything notable about the mix across these geographic domains?
5) In what stage(s) of production does the competitor operate? Does it participate only upstream? Or downstream? Or across the value chain?
If P&G was the company whose strategy I was reverse-engineering, I would identify three distinctive WTPs: a broader portfolio of non-food consumer-packaged-goods than any competitor; unique in not playing in the private label segment; and global but with disproportionate focus on a dozen geographic markets.
How to Win (HTW)
In its chosen WTP, how is it striving to be superior to its competitors? Where other competitors overlap with this competitor, how does it seek to win? The basic question is whether it is attempting to offer the same as competitors at a lower cost or to offer customers something that they see as superior.
If it is low cost — what is its theory for establishing low cost? What choices is it making that are different and are producing lower costs than all of its competitors?
If it is differentiation, along which vector is it seeking to be distinctively better for customers? What unique value is it providing? What is the theory behind it?
HTW is not as easy to deduce as WTP. More of it has to be inferred from the outside. Because of that, don’t seek perfection. You will never get there. Aim for the 80/20. That will give you important insights.
Focus on what is interesting about the WTP/HTW combination. Appreciate how real strategic choices underpin the competitor’s success. And start to ask yourself, how could we be equally distinctive?
For P&G, the HTW distinctiveness would be: product superiority through greater investment in R&D and in consumer understanding than competitors aided by focusing on billion-dollar brands with economies of scale; superior brand building, featuring higher advertising levels at best rates due to scale; and headquarters-based selling focused on joint value creation with its retail customers.
From there you can toggle up or down the Strategy Choice Cascade. Either works. I am inclined to toggle up to Winning Aspiration — because it seems to be waiting to be filled in. But you can equally go on to Must-Have Capabilities if you wish.
Winning Aspiration (WA)
This is an exercise in inference. Don’t listen to what the competitor asserts. Ask what it seems to be attempting to accomplish with its WTP/HTW choices? What motivates those choices? Again, what is distinctive about it versus other competitors?
It might be consistent with its pronouncements. But when there is a schism, assume its WA is what the company is really doing, not what it says.
P&G aspires to make the lives of the world’s consumers a little bit better off every day — a WA that feels consistent with its choices.
Must-Have Capabilities (MHC)
Remind yourself of its HTW and ask what capabilities would it require to do that? Then look closely to see whether it is making disproportionate investments in those MHC. You don’t have the inside information to know for certain their investments but look for clues. If the investments are disproportionate, you are likely to be able to see them.
For P&G, it would include larger investments relative to any competitor by far in ‘products research,’ and bigger investment in co-located customer teams than any competitor.
Enabling Management Systems (EMS)
This box on the Strategy Choice Cascade is the hardest and probably least important for you to understand because it is harder even than MHC to see from the outside. Just look for any management system that is distinct from competition and consistent with its MHC. Does it have a distinctive hiring system like Four Seasons? Does it have different policies for investments like Progressive Insurance? Does it have promote-from-within like P&G?
Practitioner Insights
Everybody from comedians to politicians knows that icebreakers are useful to get a positive flow going and every educator knows that practical exercises are helpful in learning. On both fronts, reverse-engineering your most respected competitor is a great way to start a strategy process. It teaches the team about strategy — it is integrated; it is about a real choice; distinctiveness is critical.
Don’t be perfectionist. You are inferring things from the outside and will never be perfect, no matter how much time and energy you expend. Think 80/20 and don’t be arrogant about your accuracy. You will get some things wrong.
As the team is working on the reverse-engineering, keep reminding it that strategy is about distinctiveness. Get the team to focus on what aspects of distinctiveness appear to be most responsible for making this competitor the team’s most admired. Remind the team repeatedly that converging on a respected competitor’s position won’t produce the respected competitor’s results. Those admirable results are a function of its distinctiveness, not sameness.
Focus the team on how it could take the most interesting insights from reverse-engineering its most admired competitor in a new and different direction for its own competitive advantage. That will get the team chomping at the bit to dive into its own strategy — with a little practice under its belt!
