Playing to Win: How Strategy Really Works

Roger Martin: You're right Rachel and I think that's one of the challenges of strategy, it has all sorts of definitions, and the definition that we use in the book, and that I think of as strategy, is it's a very small set of choices that helps you position yourself in an industry in order to win, i.e. to provide a better value proposition to your customers and the other people who are playing in one way or another in your space, but the key is it's choices, that's choices to do some things and not other things.

Rachel Salaman: Because I think some people think of strategy as just a plan, but it sounds like that's a little bit of a simplistic way of looking at it.

Roger Martin: Yes, I would say that you are absolutely right, that the most common definition of strategy is an object, a thing called a "strategic plan," which usually is very long, a hundred pages or more. It's got a bunch of prose and then a bunch of financials, and it lists a whole bunch of things that the company in question is going to do, it's a laundry list of things they are going to do. In fact people often use the term in the plural, these are our strategies, and then the whole list of initiatives, each one of the initiatives in their mind is a "strategy" in a list of "strategies," and one of the things I believe is that there's one thing, you have a strategy and your strategy is a set of choices. And, as we talk about in the book, it's five choices that you make and these five choices define your strategy, and that's why I say, if your strategic plan is more than five pages, it probably isn't one worth having, it means you haven't made choices, you are trying to do a whole bunch of things and it takes a hundred pages to describe all the things you're going to do, and that probably means that you've got a crummy strategy and you need to start over. And, the fact that a strategic plan is more than five pages, and in some sense I'm exaggerating and being slightly facetious in saying it's bad if it's more than that, but if it goes on and on it's probably a symptom of the fact that you haven't made choices. When you make choices, your life simplifies, and that's what you actually want to do in the corporate life, you have to make a set of choices that focus all of your resources on doing some things and not other things. And, the minute you do that and you say, "here's the things we are going to do, and here is how we are going to do those things in a particular way." It makes it easier for everybody in the entire organization to go about their business and make smart choices. And, you referred in the opening to the challenge with execution, well, what I believe is execution problems are not independent of strategy, it's crummy strategy that begets crummy execution, or the inability to "execute" at all, and that's because if you have a crummy strategy, like, "we're going to win by being the best." OK then, so how do you "execute" that, anything that you could possibly do could be justified as pursuing that particular "strategy." But if, instead, your strategy says, "OK, with this set of customers, we are going to be the best provider to them, and what we've figured out is they like to be served through this distribution channel with this set of product features, this part of the product line, and we are going to gear up our R&D to produce that particular thing so that these customers can buy this thing, of this sort, in this distribution channel." Then, when you ask the organization to essentially go forward and operate on the basis of that, their choices are really easy thereafter, they say, "OK, how do we make sure that we are dominant in that distribution channel, how do we make sure that we can communicate with those customers, what magazines and newspapers and television do they read or watch, and how can we communicate to them, how can we get to know those people super well?" Then this thing called "execution," which I think is a funny term to begin with, but that thing called execution becomes easy, and so I do not recognize, and many people say this expression which I think is vacuous, that says, "a mediocre strategy well executed is better than a fantastic strategy poorly executed." I think it's vacuous because, how would you ever know the second? How would you ever know that a strategy is excellent if it was so badly executed that it was a failure? That's the definition of a bad strategy. The only kind of strategies that are excellent strategies are the ones that produce a win in the marketplace, and the only way you produce a win in the marketplace is by helping everybody in the organization know what to do more clearly and more simply because you've made the key strategy choices.

Rachel Salaman: Well, that brings us nicely onto your five questions that you explore in your book, and the first of these is, what is our winning aspiration? Can you give us an example of what makes an aspiration winning?

Roger Martin: What we mean there is that to start a strategy, to ever have a hope of succeeding, you have to aim to win, not just participate. And an example I give, I did work with General Motors Corporation in 2006 and 2007 when they were trying to do their turnaround, and one of the most important things that was upcoming after I started working with them was the launch of the 2008 Chevy Malibu, you know Chevrolet is their biggest division and the Malibu is in their mid-car segment going against Camry and Accord, and that's the biggest and most important car segment in North America, and one of the biggest in the world, and I asked them, "what is your aspiration for this launch?" And the aspiration was to sell twice as many Malibu's as they sold in the last model year, and you'd say, "wow, twice as many, that's a pretty high aspiration," but to use the American market just to use that one market for simplicity, that meant selling 120,000 Malibus in 2008, versus 60,000 in the previous year. I said, "OK, that sounds fine, but how many does Camry sell?" – "560,000." "How about Accord?" – "440,000." So I said, "well, so what we're doing, our aspiration is instead of one tenth as many as Camry, to sell one fifth as many as Camry, is that really what our aspiration should be?" And the group said, "well, now that you've put it that way, no." And so we went back and actually did testing that showed we weren't actually going to beat the Camry, and then invested $300m in the last six months before the launch to improve the vehicle to the point where it would actually be able to compete with, and go head-to-head successfully against the Camry, and that led us to selling in the first year, which is good for a first year of the model, 250,000, and, in fact, in various months, at least in the US market, they've now drawn to nearly even with Camry. And what I'd say is the only way that's possible is to have an aspiration for winning or not just participating, but winning, and if you invest like crazy and just participating, the big problem is, you know what somebody else is going to do, they are going to invest in winning and they will beat you. And so that is the first part of strategy, it's saying to yourself, "How are we going to win? We need to figure out a way to win, that's got to be the driver."

Rachel Salaman: You also say at this point in the book that aspiration should start with people, not money, could you expand on that?

Roger Martin: Sure, the aspiration of making a lot of money which lots of people have, our aspiration is to create shareholder value and I think that's a weak aspiration because it's derivative. You can't actually make money directly, you do that indirectly through doing what? Making customers deliriously happy and by having your employees be motivated and thrilled to be doing what they're doing, and so if you can have your aspiration as something about making customers deliriously happy, the likelihood is that the money will follow, as opposed to trying to go for the money and doing things that don't make your customers happy. In order of those priorities, the priority has to do with more about the people, customers and employees rather than money.

Rachel Salaman: Your next essential question in your book is, "Where will we play?" And you point out that the "where" choices cover a lot more than just the market segment, could you talk us through that?

Roger Martin: Well, the way I think about it broadly is that there is some kind of a playing field or a battle field or chess board out there that you can decide where to plop your resources down, and that maybe in a particular geography, so we're a UK company, so where to play, and it can be a product type, so we're going to make small cars or big cars, it can be a particular customer segment, it can even be a vertical stage in the process. For example one of the biggest where to play errors that's ever been made in modern corporate history was IBM's where to play choice when they entered the PC business. They made a where to play choice, where to play is PCs, no they didn't, they made a where to play choice of within that choice of getting into the PC business, to be an assembler and marketer and distributor of PCs, and they said, "Do you know what, the operating system isn't all that important, we'll just outsource that because we do big complicated operating systems, these need little generic operating systems, so we'll outsource it to this tiny little company called what? Microsoft." "And we make big, big complicated chips, like super complicated big chips, and these need pretty little logic chips," and so who do they outsource to? Another little company called Intel. Now what's the market cap of Microsoft and Intel combined, in the trillion dollars range, and what's the market value of IBM's PC business, well they don't have it any more, they sold it to Lenovo for I believe it was £1.5bn total consideration. That was a half a trillion dollar where to play decision, they didn't know it at the time but that was an important aspect of where to play. But that's what we want to have companies think about, it's think carefully about where you can create enormous value and where there is value to be created, and pick a place to play and think about all of those dimensions with what customers and with what geography, what product type, what price tier, what distribution channel or what stage of distribution you want to go to, do you want to be in the downstream or the upstream, and how far upstream do you want to be, and in the case of IBM it's arguable that being a little farther upstream would have been a half a trillion dollar opportunity for IBM.

Rachel Salaman: You caution leaders against three dangerous temptations, could you talk us through that?

Roger Martin: They are failing to choose, and where is it important territory, where that can often happen, which is we'll play everywhere, that's a failure to choose and really it's never worked, and you can argue IBM in the 70s tried to play virtually everywhere, and that got them into trouble. Another one is trying to buy your way out of an unattractive game, many companies whose business is not going as well as it wants often tries to acquire something in a really sexy and hot industry, and that tends to be ferociously expensive and often doesn't work. The third one, and this again has a lot to do with the where to play choice that we've been talking about, is accepting that your existing where to play choice is somehow immutable, that because we've always played there we have to continue playing there, as if some god ordained that that would be the case. And I think in the modern era like newspapers feel that way, no we have to keep on providing this hunk of paper with ink on it, when that where to play is just going bye-bye, but they feel as though as part of what they do they just have to do that.

Rachel Salaman: Another tip in this part of the book is that people should be wary about the allure of white space, what did you mean by that?

Roger Martin: There is a sort of theory and there is some real value to it, the blue ocean versus red ocean thing, and big white space. The only thing I'd say about it is the danger is that's a where choice, we see some white space over there that nobody has been in so that's a where choice, but that doesn't mean you're going to win there, you can't pat yourself on the back and say, "Congratulations, you've picked a where that nobody else is in," because if it's a good where and you prove it to be a good where, you have to figure out how you can defend that where with a how to win in it, so I just think it's half the answer, unless you can figure out how to win.

Rachel Salaman: Which is your third question in the book, "How will we win?"

Roger Martin: Yes, and I often refer across the five questions as the heart of strategy being this where to play, how to win, those two choices, and as I was saying before in reference to the white space, you always have to say, "Here's where we're going to play and in that place where we've chosen to play, here's how we are going to win, and what winning means is being able to for that where, the customer set is defined by that where, we have got to have a value proposition for them which is superior to everybody else." We have to be able to say to those consumers, "Well, we've got something that they don't have," or, "There's only two things that you can do, something that they don't have," or, "We can produce what those other people have at a lower cost than those competitors and because of that we can provide it if we so choose at a lower price." The key to strategy is having a where that you can win in, in a way to win there, so your where doesn't necessarily have to be so unique, like Starbucks. What's their where to play? Corner coffee shops. Now what is distinct about that? Nothing, but they have chosen a how to win that was at its time unique. I mean, there are others who are now trying to copy it, but it still has a real power, it's going to create this third space that's not your home and not your office and it's a place where you can be comfortable with this great incredible selection of coffee with names of them all, that you have the menu and you have to get to know and become an expert in coffee ordering and make it an incredible ritual etc. That's a where to play, how to win that works, but that's the choice that every company needs to make, it's what's a where in which we can win and win authoritatively, conclusively against our competitors.

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Rachel Salaman: And the fourth question is very much related to that last point, it's what capabilities must we have in place to win?

Roger Martin: That's exactly right. So, essentially, that how to win is a description of what the consumer or the customer in our chosen where is going to feel, and how do we make that happen, what capabilities do we need to have to build and maintain that enables that to be the case on a consistent basis. And so when Burberry decided under Angela Ahrendts that they were going to be the luxury brand that appealed to the slightly younger demographic, the emerging luxury via a more youthful buyer and they were going to do that by being where that buyer wanted to be, and that was online and so they had to take Burberry which was nowhere online when Angela and Burberry commenced that strategy, and build the capability to have the best online presence in the world, and that means doing things like, and I don't know if you've ever watched one of their quarterly reports? Rather than issuing a paper quarterly report it's a video, and they all go viral because they are so cool, so all of that capability had to be built for them to win with that demographic, so if you didn't have that capability it's just a pipedream. This, unfortunately, is often where strategy falls down when people have a great idea, this is how we're going to win but they don't then build the capabilities behind, and what we find is the exercise of saying, "OK, the question asked of us, what would have to be true, what would have to be true for us to be able to win there in that where to play? And we're going to win that way. Well, we'd need these capabilities.

Rachel Salaman: And your book is very practical, you talk about activity systems, could you explain what these are and why they're important?

Roger Martin: This comes from a work of one my beloved mentors and friends, Mike Porter, who I think correctly said way back in an article in 1996 that generally sustainable winning does not come from doing one thing well, it derives from having a set of activities that when you take them together they produce a how to win that is more sustainable. Often, companies say, "Well, we will win on the basis of having the biggest manufacturing plant, the biggest polyethylene plant in the world, and it will be the lowest cost because it's the biggest, and they go and do that and sure enough they have competitive advantage because they've got the lowest cost, biggest polyethylene plant in the world, and everybody says, "Hurray!" But then somebody says, "Oh, OK, so that's the game, why don't we just build one twice as big as that and your competitive edge has gone forever." If, instead, it's a more subtle advantage like the one that under A.G., Procter & Gamble tried to double down on, say, "Well, we're going to combine capabilities in innovation, in brand building, in scale, in go to market capability, our customer teams are still going to market, and consumer understanding, then it's going to be hard for anybody else to actually compete with that and be as good on all of those things. Some of the companies, like L'Oreal and Beauty Care, might be as good as us at consumer understanding and brand building but at such a smaller scale they don't have the scale advantage that we have in purchasing, advertising, and in scale with the distribution channel. Unilever might be as big as us and have the scale, but they might not have the same kind of innovation and the same spending on R&D, and those things are what Mike Porter called an "activity system" – a set of activities that together produce that advantage position.

Rachel Salaman: And the fifth and final question in your book is, "what management systems are required to support our choices?" And here you talk about something called an "OGSM," standing for Objectives, Goals, Strategy and Measures, which Procter & Gamble used, how does that work?

Roger Martin: What it is, it's one page in classic P&G traditions, a one-page summary of what the strategy is, and how we will be able to know that it is working, and that's where the M is, the "Measures," and that is part of a management system where you have to update your OGSM on an ongoing basis. One page is not that hard, and the CEO, because the CEO has to manage in the case of Procter & Gamble, 20 or 21 very distinct businesses that you can keep track of their strategies, how they're doing, how they fit together, and that's a management system for ensuring the strategies across those businesses are doing what they need to do and they're being measured as such. But another management system that I love to point out, everybody loves the Four Seasons, it's a global business, number one luxury hotel chain in the world in size and rating and profitability, and they have a management system. There they have a huge price premium on the basis of superior customer service, fantastic customer service, and you might ask, "Well, how does that happen?" Well, one is a management system, it's called the "glitch report and service recovery system." So, any time anything seems to go wrong that's noted, a guest is upset about this or that, or you can tell that the guest didn't get what they want, that has to be recorded as a glitch, and I love the name, it's a glitch and it goes on the glitch report, and every morning the entire hotel staff gathers to go over the glitch report and ensure that there's a service recovery project on for every glitch. What service recovery means is we will recover to the point where that guest is as happy as they were before the glitch, and if that means giving them tickets to the opera, a bottle of champagne, a free dinner in the restaurant, whatever it is. And you will make errors, it is impossible to have an error-free existence, but what you do after the error is what matters, and service, people will see service as being a manifestation of if anything goes wrong, "Wow, does Four Seasons ever make it right!" But you need a management system, you can't just say that's what we're going to do, you need a management system that helps build and maintain that capability so that you can win where you've chosen to play and meet your winning aspirations. So it's the fifth question but it impacts all the way up through the line of the question.

Rachel Salaman: You mentioned measurement earlier on, and you clearly believe that measurement plays an important part in getting strategy right. Can you talk us through that?

Roger Martin: Sure, and this gets back to something we talked about right at the start, how do you make everything easier rather than everything harder? And, if you leave things super vague, your choice is vague and it's just a list of initiatives – that makes it harder. If you don't measure things so people don't know how they're doing, and therefore can't fix things that aren't working the way you want them, that makes life harder, and so having measurement systems, saying, "We want to win in this way," when you say that you can say, "Well, how would we know?" And that's a really important question to ask: "How would we know if we're actually doing that?" Versus, "We just think we're doing it and we might not really be doing it." And so measuring it, and at Procter & Gamble, for example, market share is a phenomenally important measure, if you are not gaining share against your competitors, it's probable that you're working hard to play to win for that category, papers or skincare or whatever, and it's not working the way you want, and so literally and every month A.G., or the CEO and the category presidents and the brand managers will be looking at market share trends one month, three months, six months, 12 months, are we indexing positive? I.e., we have a higher market share or lower, it's green and red and that way you know immediately, or as close to immediately as possible, that you have to start taking some action sooner rather than later. And so I think if you can't convert your how to win desire into a measurement, you won't do it, it won't happen.

Rachel Salaman: You finish the book with six strategy traps, which do you think are the most dangerous of these that people should know about?

Roger Martin: A couple of things I want to say, one is these are very much A.G.'s idea, and he's a great collaborator on the book, and I want to give credit where credit is due, and this was his clever summary. The one that I probably worry about most is something for everyone strategy and dreams-that-never-come-true strategy. So, the something for everyone is this idea of just not being very choiceful and saying, "Oh, we can do that. Oh yes, we can do that too. And see that competitor selling some stuff to those people? Well, we can do that too." And what I just find is that in the world of business and the world of strategy, I've just never seen a situation where a company can win in a whole lot of places at the same time. The other one, and I think there's an obsession these days with vision statements and mission statements, the dreams-that-never-come-true strategy, there are so many companies that think strategy is saying, "We're going to be awesomely fantastically, the best and biggest, and here's our vision for 2020, we'll be the biggest and the best company, and now we're done." "So what do you mean you're done, you've just barely started!" is what is more truthful, but that's what you hear a whole lot of, and this is why one of the things I say is one of the worst possible things you can do in strategy is hole yourself up in a conference room and spend days and days wordsmithing a vision statement as your starting point and a strategy process. It's a bad idea because that vision or mission statement is only of any utility at all, and I mean any utility at all if it can be translated into a where to play or manifested into a where to play, how to win and if you haven't yet considered your where to play, how to win, well then how do you know that that's going to be even a viable mission statement? So, my advice is sure, go have your vision, mission exercise, spend a couple of hours on it to say what do we want to be when we grow up, and what would be a wonderful aspirational statement of winning, but then just don't try and absolutely lock and load and make sure everybody is 100 percent consensus, say, "Well, this is a good starting point for it, and now let's go and see if there's a where to play, how to win that would bring this alive, and then we'll revisit it if it's not quite appropriate, if we have to modify it a little bit." And you iterate back and forth, rather than lineally saying, we're going to do a vision statement and every single word is sacrosanct and after that there is no changing it, that's not helpful, not helpful to the cause.

Rachel Salaman: So changing the way things are done is hard in any organization, however small or big. If someone listening wanted to put some of your tips into action tomorrow, where would be a good place to start?

Roger Martin: There's a chapter in the book about A.G., and I really changed the strategic planning process, the strategy development process at P&G, and that's where to start. And what we really did there that made a big difference is change it from a presentation theater kind of thing to a real dialog, where, instead of coming in and trying to sell your strategy, what we did was say, "This is about having a real dialog where we think of what are the really key issues that stand between us and having a clear where to play, how to win, and let's just discuss those, let's have a discussion that is not about performance, it's not about have you got a perfect strategy and we can check the boxes, but actually make it a dialog, it's about trying to create something that is a terrific strategy to guide us." There's a real power in having open dialog about strategy, rather than locking and loading really early on it, and I would say just follow the five questions and recognize that the heart is the where to play, how to win, choice, and roll around multiple where to play, how to win options in your mind, don't lock and load too soon on that, and if you get into that mode of having a real dialog about it, with various levels in the organization, various people in the organization, what I've seen is most companies can come up with a really cool where to play, how to win.

Rachel Salaman: Roger Martin, thank you very much for joining us.

Roger Martin: It was lots of fun Rachel, happy to do this any time.

Rachel Salaman: The name of Roger's book again is "Playing to Win, How Strategy Really Works," and it's co-authored with A.G. Lafley. I'll be back in a few weeks with another Expert Interview, until then goodbye.