Lafley and Martin’s Five-Step Strategy Model

1. What is our winning aspiration?
2. Where will we play?
3. How will we win?
4. What capabilities must we have in place to win?
5. What management systems are required to support our choices?

Figure 1 – Lafley and Martin's Five-Step Strategy Model

Reprinted by permission of Harvard Business Review. From "Playing to Win: How Strategy Really Works" by A.G. Lafley and Roger Martin, 2003. Copyright © 2003 by the Harvard Business School Publishing Corporation; all rights reserved.

Once you've answered each question, be prepared to to revisit earlier questions to refine your answers.

Applying the Five Steps

Let's look at each of the five steps in detail, and think about how you can apply each one to your organization.

1. What Is Our Winning Aspiration?

Your winning aspiration is your organization's guiding purpose – it's the reason that it does what it does.

Lafley and Martin maintain that you must play to win – this encourages ambitious thinking, and anything less results in mediocrity. However, it's important to remember that "winning" can mean something different to every organization. It's not always about the highest stock price, or the largest per-quarter profits.

Think carefully about how your organization wants to define "winning," and about what you're ultimately doing to make the world a better place. This is where you need to start writing mission and vision statements, both of which outline your organization's goals and values, and it's where you need to begin defining your USP (Unique Selling Proposition). (You will probably want to refine these as you go through this five-step process.)

2. Where Will We Play?

No organization can be everything to everyone. Where you decide to compete will influence the strategy that you develop.

Consider questions such as these:

• What states, countries, or regions do you want to compete in?
• What products or services do you want to offer? What markets and categories do you want to address?
• Which market segments do you want to sell to?
• How will you get your product or service to your customers? What distribution channels will you use?

One of the best ways to choose where to play is to figure out which customers matter most to you, because the rest of your strategic decisions will revolve around these people. Who are they? What do they want? Why and when do they buy? Where are they located? And what is the best way to reach them? (Again, be aware that you may need to change or refine these choices as you work through this process.)

Established organizations don't always have to stay in the same market. You can sometimes choose to compete in an entirely different market, or shift to a new market segment within a certain category.

3. How Will We Win?

To win with your target customers, you need to create a product or service that meets your clients' needs uniquely well, and that provides value in a uniquely significant way. As part of this, you might have to meet a need that they aren't already aware of.

Start by thinking about the type of strategy that you're going to use. Do you want to be the lowest cost supplier in the market, or do you want to create a uniquely valuable product? (Note how often we're using the word "unique" here – if you just offer "me, too" products, you're doomed to compete in a low-price, no-profit way.)

Next, consider using tools such as Value Chain Analysis to understand how your organization creates value for customers, and to identify areas where you can increase that value. Also, explore approaches such as Doblin's 10 Types of Innovation as a way of expanding innovation to all areas of your organization.

Next, look closely at your competitors. Do you want to compete in the same market as a strong competitor, or would you rather take the lead in a different sector? How well your competitors currently perform within a chosen area is an important consideration.

Gather competitive intelligence on these organizations to discover what they're doing, and, more importantly, to see if they're doing something better than you are. Then, look again at your USP Analysis to think about how you can craft a successful and sustainable competitive position.

4. What Capabilities Must We Have in Place to Win?

Your capabilities are the things that your organization is able to do to bring the choices from the previous three steps through to fruition. These capabilities must fit with – and reinforce – one another, if they're going to work effectively.

Do you want to have the best sales force? The highest quality product? The best technology? If so, think about the capabilities that you must develop to have these things.

The capabilities you need may differ for each product, brand, or business unit that you have. If your organization supports several different brands, then each may have its own set of capabilities.

First, look at your organization's resources. Will you outsource your production, or do it in-house? Do you have the capabilities (cash, suppliers, and distribution channels) to supply the market of your choice, without exposing your organization to risk or strain? And are there any resources that can give you a unique and sustainable competitive edge? (VRIO Analysis can help you think about this.)

Then, go back to your "where to play" and "how to win" assessments. What unique capabilities must you have in place to bring these ideas to life? Conduct a Core Competence Analysis to determine which capabilities you need most, and then plan how you'll build and reinforce these capabilities, so that they are sustainably the best in your market.

5. What Management Systems Are Required to Support Our Choices?

According to Lafley and Martin, this last choice is the most neglected of the five. Put simply, if you don't have effective management systems in place to support the choices you've made in the previous steps, your strategy will probably fail.

Define Critical Success Factors, and put into place systems to measure and report on these. Review motivational processes, performance management systems, and strategic compensation to ensure that these support the new strategy.

Then, look at the processes and systems you already have in place. Are they efficient and useful, and will they help you deliver the new strategy effectively? Where appropriate, restructure and re-engineer processes, so that they deliver what you want; and use the McKinsey 7S Framework to explore other aspects of your organization that may need to change.

Then, go back through this process, and ensure that the strategy you've developed is coherent and consistent, and that it represents the best set of strategic choices for your organization. Keep on refining the answers to Lafley and Martin's questions until you're happy that it does.

Finally, communicate your strategy to everyone in the organization. Each person should know and understand what you're about to do, and, more importantly, why you're doing it. Encourage everyone to ask questions and submit suggestions on how to implement the strategy effectively.