GREAT companies do not become great by accident; they become great through the strategic choices they make.
Great companies do not remain great by inertia; they remain great through the strategic choices they make.
Procter and Gamble (P&G) is a great company by any measure. In 2012, it recorded $83.68bn in sales and Fortune magazine ranked the company the fifth most admired in the world.
A G Lafley was the chairperson and CEO of P&G through one of the most challenging periods in its history. When he took over the leadership position, the company was no longer delivering outstanding returns.
P&G was considered too big to continue being a growth stock. With Lafley at the helm, it achieved the near impossible - growth at a pace rarely associated with mature, enormous firms.
This book is about how a strong commitment to strategy, at every level, and in every part of the organisation made this possible.
In P&G's case, this was not a commitment to the board’s strategy (a surprisingly rare event anywhere), but a strong commitment to thinking about one’s division, department or business unit using a strategy method.
Strategy is one of the most misused and misunderstood concepts in business. Lafley cites ideas often mistaken for strategy.
‘Strategy’ is often misunderstood as ‘a vision,’ which offers no guidance “to productive action and no explicit road map to the desired future”.
Strategy is not a plan or a set of tactics; those are only elements of strategy. Strategy is certainly not leaving control to chance and watching what emerges.
Strategy is not following best practices - sameness is not strategy, it is a recipe for mediocrity.
Strongly committed to some of the principles espoused by Michael Porter and to using his terminology, Lafley and co-author, Professor Roger L Martin, describe their playbook: Five Choices, One Framework, One Process.
The title “Playing to Win” is a central theme of Lafley’s approach. “Winning should be at the heart of any strategy” - in fact, it would make no sense to Lafley to aspire to anything less than winning.
In order to beat the competition, two key questions need to be answered: “where to play,” and “how to win”. The strategic decisions made for P&G products are used to illustrate the application of this method.
'Oil of Old Lady'
The skincare product, Oil of Olay, was getting “tired” and sales were declining, but brand recognition was still strong and it was still profitable. People were calling Oil of Olay “Oil of Old Lady.”
Applying the question, where should it play, they identified that existing customers were price sensitive and only minimally invested in skincare. However, they also identified a new set of customers who had real growth potential: the 35-plus age cohort that was beginning to notice their first lines and wrinkles.
To win, P&G scientists went to work on sourcing and developing better and more effective compounds. This would create a skincare product that could dramatically outperform existing products in the market.
Olay fits in a product category where price is an indicator of value, but P&G was designed for mass markets and so they developed an additional category, “masstige” - a mass market prestige version of their product.
Priced high enough to give substantial margins, indicate value and appeal to the upper end of the mass market, they revitalised the brand, attracted a younger consumer, and expanded their offering.
They had answered the strategic question, “where to play,” and “how to win”. These strategic questions were followed by the operationalisation of the answers in the form of two other questions: what capabilities must be in place, and what management systems would be required to ensure successful implementation.
Strategic thinking using the five principles was not the preserve of the board - rather it was a process to be followed everywhere in the organisation.
Using the same strategy process, the marketing department reformulated their mandate. An essential element in P&G’s company strategy is the classification of the customer as “the Boss” whose needs must be understood accurately and satisfied better than expected.
To this end, marketing defined where they should play as the conducting of innovative market research using edgy techniques. All conventional research, such as surveys and focus groups, would be outsourced.
They could have chosen to play in the conventional research field and outsourced the edgy techniques, but decided not to in order to serve their customer more effectively than an external provider could.
Strategy is all about making choices.
This is not a ‘how-to’ book on strategy, according to Porter. An industrial economist turned strategist, he was in his prime in the 1980s.
His thinking is still relevant to behemoths in manufacturing, with some important modifications. It is certainly not applicable to many other businesses without modification and manipulation.
This extremely valuable book is a testament to the importance of instituting thinking strategically through out an organisation to deliver a sustainable competitive advantage.
This is the first comprehensive account of this means I have ever come across, and what a powerful example at that. P&G has had an outstanding record during some of the most difficult years in business and has succeeded.
Take this seriously. Very seriously.
Readability: Light --+-- Serious
Insights: High -+--- Low
Practical: High -+--- Low
*Ian Mann of Gateways consults internationally on leadership and strategy. Opinions expressed are his own.