Playing To Win

The Secret to Knitting Strategy Together Corporate-Wide

A reader asked me a very good question about how to coordinate strategy across the vast expanse of the modern large corporation. The short answer is that it is a non-trivial challenge — often handled poorly. Hence, I have dedicated my 4thYear II Playing to Win/Practitioner Insights (PTW/PI) piece to The Secret to Knitting Strategy Together Corporate-Wide: Key off the Coalface. You can find all previous PTW/PI here.

Bigger is Better

In business, size matters. Bigger is better, in particular if the bigness is monolithic, whether — Windows, iPhone, Google Search-based advertising, Amazon On-line Sales, Facebook social media-based advertising, Coke, Verizon consumer mobile, Netflix streaming subscription service. These are all gigantic and largely monolithic products/services, and their owners have become the world’s most valuable corporations because of the huge economies of scale they enjoy.

However, nothing in the world of business is truly monolithic, fully homogenous. As big gets bigger, it inevitably fragments, for instance by geography or customer type. Going global gets you bigger. But the US market is not the same as China or Brazil or Nigeria. It is nice to grow bigger by adding customer types, for example adding individual consumers to business customers, or vice versa, but they aren’t the same either.

In addition, owners of gigantic products/services have the capabilities (financial and otherwise) and the motivation to develop and/or buy into other businesses — Amazon into Marketplace and Web Services, Microsoft into Office and Cloud, Google into Android, Facebook into Instagram, Coca Cola into Minute Maid and Dasani, etc. The resulting diversification fragments their bigness even more.

The Tricky Thing

The tricky thing is that each one of these chunks needs a strategy, whether by region/country, customer type, or product/service. For Microsoft, the strategy for Windows is not the same as Office or as Cloud or as Gaming. For P&G, the strategy is not the same for diapers, oral care, laundry, feminine care, etc. And it isn’t the same for the US market as for every other country. There are, of course, lots of commonalities. But the contexts are sufficiently different that the right strategy choice is not identical for all of them.

The dominant way that I have observed companies deal with this trickiness is to declare a strategy from the top and tell everyone below to execute it. This can work — for a time. But the challenge is that this approach develops managers throughout the business who are capable only of squeezing pennies out of their businesses in ‘execution mode,’ which works until it stops working. When whatever they are doing consistent with ‘executing the strategy from corporate’ stops working in their particular part of the business, they are at a complete loss as to what to do. I have seen this phenomenon play out many more times than I would care to remember.

Alternatively, smart managers of countries, products/services, and even functions just roll their eyeballs at the delusional people at corporate office and create a tailored strategy for their part of the business — and succeed despite their corporate masters believing that they are simply ‘executing.’

However, the downside with the latter approach is that the result is uncoordinated. Its strength is in tailoring the positioning of each part of the business to its unique context. Its weakness is in coordinating across businesses to take advantage of overall corporate bigness. And the capital markets don’t take kindly to that as illustrated by the nearly simultaneous announcements of the split ups of prominent and venerable companies General Electric, Johnson & Johnson, and Toshiba. Often the pieces of the corporate whole don’t belong together. But just as often, the lack of intelligently strategic coordination makes that conclusion the seemingly only sensible one.

Knitting Strategy Together

To get benefits of scale in the modern corporation, strategy needs to coordinate across multiple locations at which competition really takes place and where a corporation needs to play to win — what I call the coalface of strategy.

1) Finding the Coalfaces

The first step in knitting strategy together corporate-wide is to identify those coalfaces at which competition takes place. While we might romantically imagine that Coca Cola competes with PepsiCo, that is not the coalface at which competition for the customer actually takes place. If it is diet colas, it is Diet Coke vs. Diet Pepsi. If it is orange juice, it is Minute Maid vs. Tropicana. If it is sports drinks, it is Powerade vs. Gatorade. And if it is bottled water, it is Dasani vs. Aquafina. Customers of cloud services choose between Azure, AWS, and Google Cloud. Yes, Microsoft, Amazon and Google are in the picture — but only in the background. Nothing that the parent company says or does at head office will save it if it doesn’t win head-to-head with customers at the coalface.

Identifying the coalface is not a simple task. Is hair care the coalface for P&G? I would argue not because shampoos/conditioners, styling aids and hair colorants are so different, with different competitors and competitive dynamics, that hair care isn’t the coalface at which customers make purchase decisions. How about shampoos/conditioners? Again, no because P&G’s Head & Shoulders, Pantene, Herbal Essences, and Rejoice brands compete so differently against such different competitors with such different customers that it isn’t the coalface either. How about Head & Shoulders (H&S)? Maybe. But it might be H&S Smooth & Silky versus H&S Dry Scalp Care. But that might be taking it one step too far. Are they identical? Is competition the same? You will only know for sure if you do strategies for both and they are meaningfully different. If they are, then you need a strategy for both coalfaces. If not, then it is safe to assume that one coalface for P&G (at least in one geography — say the US market) is H&S. Regardless, P&G must have a distinct strategy for the entity at the coalface, whether H&S or H&S Smooth & Silky (my bet is the former). That means a Winning Aspiration (WA), Where-to-Play/How-to-Win (WTP/HTW), Must-Have Capabilities (MHC), and Enabling Management Systems (EMS) for the coalface business — and every other coalface.

One price of bigness is having a management system that ensures that each coalface has a strategy that enables the company to win the competitive battle there.

2) Helping the Coalface

The job of every unit that exists above the coalface is to help the business at the coalface to compete more successfully, because the coalface is where you lose or win. If H&S Smooth & Silky is in fact the coalface, then H&S must help H&S Smooth & Silky, which it does by providing it with by far the most powerful brand name in anti-dandruff shampoos. If H&S is the coalface, then shampoos/conditioners must help it compete, which it does by spending the most on R&D in shampoo chemistry in the entire industry. Then the hair care business needs to help the shampoos/conditioners business help H&S compete. And the beauty business needs to help the hair care business help shampoos/conditioners business help H&S compete. And P&G must help beauty care to help hair care, to help shampoos/ conditioners, to help H&S.

The same must happen across geographies — global must help groups of countries which must help individual countries with them, which must help regions within them.

Every large company is large because it has multiple coalfaces at which customers make decisions about which competitive option to buy. Thus, another price of bigness is having a management system that ensures that each coalface is helped to compete by the levels above.

3) Going Both Ways

But the knitting together doesn’t just flow from the coalface upward. If that were the case, the corporation could end up as an uncoordinated conglomerate of random businesses — which the modern capital markets would immediately tear apart. The corporate level needs to determine where and how it will add value and shape its portfolio of coalfaces accordingly. If it can’t help a given coalface, then it needs to find that coalface a better home where it will be helped to compete (or at a minimum left alone without meddling from above). In essence, GE’s split announcement was a declaration that GE could not see value that it could add to the aviation, energy, and healthcare businesses — so it decided to set them free, and similarly at J&J and Toshiba.

It will always make sense to split up companies unless the corporate level can figure out what capabilities it can build that will enable it (plus the levels between corporate and the coalface) to consistently add value at the coalface. Any coalface that it can’t benefit should be exited and coalfaces that can benefit from the corporation’s capabilities should be entered and/or expanded. That is how a 19th century candle and soap company, P&G, became a consumer packaged goods powerhouse across ten businesses around the globe. It built and acquired many new coalfaces along the way. But it also had to exit businesses such as pharmaceuticals, pet food and batteries that it found that it couldn’t help to compete at their respective coalfaces.

4) The Back-and-Forth

The instant a company expands to multiple coalfaces with differing competitive dynamics, it needs to engage in the back-and-forth between coalface strategy and strategy at the aggregated levels above. That is, it both needs to develop a strategy to win at each coalface, which includes how the levels above the coalface will help the coalface, and a strategy for each level of aggregation (including corporate) that chooses the coalfaces to support and the capabilities that must be built and maintained to generate a competitive portfolio. GE made the decision that it couldn’t help its energy business enough to maintain it as a subsidiary of GE — and it will be spun off into its own company. But GE’s energy business is itself a widely diversified company competing at many coalfaces. It will need to perform this back-and-forth exercise to develop a strategy that will be more compelling than the strategy for GE corporate was.

Practitioner Insights

Always remember that competition for customers against competition occurs at the coalface, so key your strategy off what is happening at the coalface. A coalface should be part of a company only to the extent that the various levels above the coalface help the coalface compete. A powerful corporate strategy ensures that all coalfaces in the portfolio are helped competitively by the capabilities that the corporation develops. The power is increased to the extent that the coalfaces that can’t be helped are set free and that coalfaces that have the potential to be helped are brought into the fold and expanded.

Because strategy takes place at all levels in the corporation, lots of managers need to be adept at strategy. One of the most important management systems is the one that ensures that strategy across the corporation gets done by the right people in the right places. That means making sure that the coalfaces are identified, and a strategy is created for each, and that the back-and-forth honing gets done. One implication of this is that the most important role of the Chief Strategy Officer is not to do strategy but rather to make sure strategy gets done across the corporation, in a way that knits it all together.

Professor Roger Martin is a writer, strategy advisor and in 2017 was named the #1 management thinker in world. He is also former Dean of the Rotman School.