Where to Play; How to Win

Where to Play How to Win

Another autumn Friday, another key strategic concept to discuss. Previously, we have covered Stephen Bungay s strategic intent and Richard Rumelt s guiding policy. Today, we turn to the amiable Roger Martin and his wildly popular Where to Play/How to Win framework.

First introduced in the smash hit Playing to Win: How Strategy Really Works co-written with former PG CEO A.G. Lafley, Martin s approach to strategy has become the default starting point for many practitioners. In fact, unlike the works of Michael Porter upon which he relies quite heavily for inspiration, there is little criticism or publicly expressed reasons not to use it to be found anywhere. As far as the broader strategic community is concerned, then, playing to win appears to really be how strategy works.

It also helps Martin s cause, I would suspect, that he continuously finds time to blog about and answer questions on the practical implications of his theories. Few thinkers of his immense stature do, and he indisputably deserves credit for breaking the mold.

However, absence of evidence is not evidence of absence. Just because critique has yet to be provided, it does not mean that the framework is perfect. So let us have a closer look at how it holds up to scrutiny.

At its heart, Playing to Win relies on five pillars: the winning aspiration, where to play (WTP), how to win (HTW), the core capabilities needed to win, and management systems required to support said capabilities.

To the point of this particular newsletter, we are going to focus on the first three.

The winning aspiration, per Martin s definition, establishes the purpose of the enterprise through a statement about its ideal future and thereby frames all subsequent choices. Crucially, it should be tied to a desire to win in a particular place and in a particular way, not least to allow later stage benchmarking. Clarity is thus key; anything less will ensure that actions at brand, category, sector, and company level fail to deliver against the ideal.

While the winning aspiration broadly sets the scope of the firm s activities, the next two questions define the specific activities of the organization what the firm will do, and where and how it will do this, to achieve its aspirations .

Put differently, if the aspiration is the larger what, WTP and HTW provide the detailed where and how.

Where to play ultimately represents a set of choices that narrows the competitive field by establishing the markets, segments, channels, categories and so forth in which the company intends to compete. No company can be all things to all men (and/or women), so narrowing down the strategic playing field makes intuitive sense.

How to win, meanwhile, defines the choices made to win within the aforementioned field. Ideally, these should be based not only on the winning aspiration, but too on how the company can best create and deliver unique value to customers. By being suited to context and highly difficult to copy, this should in turn create a competitive advantage.

It all sounds rather good in theory. But, like in the case with Rumelt last week, despite its creator s focus on the pragmatic, the framework often amounts to something a lot less concrete in practice.

To be fair to Martin, this is not entirely his fault, and as mentioned above, he has made a rather substantial effort to prevent it from happening. The unfortunate problem is that many of the examples he provides fail to help his case.

To illustrate, a winning aspiration mentioned in Playing to Win and often referred to by proponents of the approach is that of Starbucks, i.e., to inspire and nurture the human spirit one person, one cup, and one neighborhood at a time . Even with the best will in the world, that is not a winning aspiration that brings clarity to subsequent choices as much as nonsensical fluff. As has been embarrassingly noted on more than one occasion, people do not go to coffee place conglomerates to have their spirits nurtured. They go there to buy coffee.

Similar contradictions can be found throughout the book. A rule of thumb, he argues at one point, is to include the customer in the winning aspiration, not money. Yet the most important company to the overall narrative, Olay, defines its winning aspiration as market share leadership in North America, $1 billion in sales, and a global share that put[s] the brand among the market leaders . This has nothing to do with customers as such, nor has it strictly speaking got anything to do with winning other than in relation to the US market.

Among my issues with his approach (which, to be clear, are far fewer than with many other famous bodies of work), the focus on beating the competition is arguably the biggest. Martin makes a point of repeatedly stressing that winning is the only thing that matters the ultimate criterion of a successful strategy and that anything less is self-defeating. But, clearly, that is not true.

Potential correlations between chasing market superiority and negative profitability aside, calling winning the ultimate criterion implies that in any given market there will only be one company with a truly successful strategy. Though I do not think that is what he means, it is nonetheless often how it is interpreted; I have had conversations with more than one strategist who argued that it should be taken verbatim, and that any strategy that fails to win also fails to be a strategy. Not only is this demonstrably false, but too a rather problematic statement. If the merits of a strategy truly are to be defined solely by its outcomes, it would require a controllable linear causality that does not exist in complex markets. Assuming that a good result equals a good strategy, and conversely that a bad result equals a bad strategy, is nothing more than halo affected reasoning. Just because Starbucks are doing very well, it does not mean that their winning aspiration is brilliant. It is not.

Now, one might counterargue that an aspiration to win is not the same thing as actually winning, and that is a fair point. But it still hinges on performing against the competition. The question then becomes who one is competing against.

The answer is a lot harder to come by than most realize. No matter how much companies would love to be able to themselves delimit their opposition, simply naming a market segment, to paraphrase Byron Sharp, does not make it exist. A manufacturer of individually wrapped, chocolate coated candy, say, does not merely compete with producers of identical confectionary, but a myriad of brands within a broader category. Other categories can provide competition too; all kinds of products and services can cover the same need and be sold across geographical markets. A product feature implemented does not automatically mean a product feature recognized, prioritized or valued.

Consequently, the competitive set against which companies attempt to win on paper inevitably ends up being significantly wider in reality than they would like it to be and perpetually in motion. Attempting to limit competition by narrowing it down in a strategy document generally does not make it possible to do so, which makes notions of cost-leadership and differentiation a lot more difficult in practice than in theory.

Although this admittedly is an issue with much of traditional strategic discourse, there is no denying that it undermines the underlying reasoning in Playing to Win. Strategy in reality is typically more about you than them and, for most, more about managing challenges than achieving superiority. No company will act in a vacuum, of course, but nor are markets zero sum games.

It is for this reason that the strategic ambition in the ABCDE framework does not include winning, but a shared understanding of success. Though it can, I suppose, be interpreted as a statement about what winning looks like in the eyes of the beholder, that may be taking it too far; in and of itself, it does not have to include competition in either explicit or implicit terms.

On the whole, Martin stands among the behemoths of the industry due to his excellent additions to the body of knowledge that is strategic doctrine. However, as we have seen, WTP/HTW is not without flaws. Despite loud calls for the contrary, it may therefore be best taken in metaphorical rather than literal terms.

Next week, we will see whether Henry Mintzberg s concept of strategic perspective will help us further. Until then, have a lovely weekend.

Where to play and how to win: An approach to strategic thinking

Where should we compete?
How will we win there?

• This approach to strategic thinking gives rise to interesting, engaging and ultimately useful strategic discussions at the executive team and board level.

In our work we help clients with strategic thinking and strategic planning. The thinking part is frequently informed by a series of strategic questions: Where will we compete? What is and will be our distinctive value proposition? What capabilities do we need? (see Ten strategic questions you need to ask )

We ve recently worked with several clients on two strategic questions in particular: where should we compete and how will we win there. These questions were popularised by North American strategy academic Roger Martin (2012).

We ve adopted and adapted what we think is the best of the academic frameworks relating to where and how an organisation competes and combined it with our own thinking.

Our focus has been on how to work with clients in workshop settings to answer these simple but profound questions.

We ve come up with what we believe is a simple and galvanising method. It centres on:

• working hypothesis about where we compete or scope and continua that force scope choices; and
• a set of differentiation dimensions, that go to how an organisation will compete, and the activity system required to support differentiation.

This approach gives rise to interesting, engaging and ultimately useful strategic discussions at the executive team and board level.

Where will we compete?

We start with a discussion with the CEO regarding scope. What are her or his
working hypotheses about where the organisation will compete and win which customer groups, which products, which geographies? What is in and what is out of scope? What are the implied shifts?

The second technique we use is to make explicit what that means the organisation will do and definitely won t do. Our US colleague Bob Frisch (2012) calls this walking the walls and fences. Walking the walls and fences entails collectively testing and affirming the boundaries of an organisation s business model.

Walls are the boundaries around any business that are assumed to be immovable. But by challenging these assumptions, teams can discover that walls are sometimes fences boundaries that can in fact be moved if there s a compelling reason to do so, opening up strategic space…

How will we win there?

Differentiation can be a loose baggy monster. And it can be particularly challenging to have beneficial discussion about it in a workshop setting. We have found that a two-part framework derived from the work of Harvard academics David Collis and Mike Rukstad (2008) and Michael Porter (1996) can be helpful.

Collis and Rukstad suggest that the complete definition of an organisation s competitive advantage (or uniqueness) consists of two parts.

The first is a statement of the customer value proposition. Any strategy statement that cannot explain why customers should buy your product or service is doomed to failure. A simple graphic that maps your value proposition against those of rivals can be an extremely easy and useful way of identifying what makes yours distinctive.

Prior to workshops, we ask participants to consider a set of potential differentiators such as price, service, brand affinity and customer intimacy. For each dimension where are they now and do they think they should and could be in future behind peers, meeting the market, ahead of peers or distinctive? We ve found that executive teams and boards derive great benefit from surfacing and discussing different perspectives and working towards a handful of specific bases of differentiation.

But identifying bases of differentiation is only part of the answer. As Michael Porter points out competitive advantage is a function of many complementary, reinforcing activities. Accordingly the second part captures the unique combination of activities allowing that firm alone to deliver the customer value proposition.

According to Porter, Activity-system maps show how a company s strategic position is contained in a set of tailored activities designed to deliver it. In companies with a clear strategic position, a number of higher-order strategic themes can be identified and implemented through clusters of tightly linked activities.

We work with clients to elaborate the specific bases of differentiation derived from the previous exercise (the higher-order strategic themes) and then to identify the clusters of tightly linked activities that support them.

Strategic thinking precedes strategic planning. We ve found that being strategic about where and how an organisation competes that is, its scope and differentiation is a highly engaging and valuable precursor to strategic planning discussions about objectives, measures of success and initiatives.

References:

Collis, D Ruckstad, M, 2008, Can You Say What Your Strategy Is? , HBR, April

Frisch, R, 2012, Who s in the room? How great leaders structure and manage the teams around them, Jossey-Bass, San Francisco CA

Lafley, A Martin, R, (2012) Playing to win: How strategy really works, Harvard Business Review Press

Porter, M, 1996, What is strategy? , HBR, November

Want to know more?

If you would like Right Lane to help your organisation work out where to play and how to win, contact Marc Levy: marc@rightlane.com.au

Right Lane Review

This is article 4 from the June 2015 edition of Right Lane Review: Learning and growth. Full newsletter here.

Where s the Business Model in Playing to Win?

I am frequently asked the question: Where is the business model in the Playing to Win Strategy Choice Cascade? Shouldn t there be a sixth box for business model? I get the question sufficiently often that I decided to do my 25th Playing to Win/Practitioner Insights (PTW/PI) on Where s the Business Model in Playing to Win? (Links for the rest of the PTW/PI series can be found here.)

The Business Model

Business model takes on a myth i cal aura for many. When entrepreneurs get asked about their business model, the desired response is something that will make it clear it is headed for the stars. It is going to be the Airbnb of x or the Warby Parker of y. Our business model is that we ll charge $1.50/order to the shoe company to which we send a shoe-buyer that comes to our shoe-buying aggregation site. And with only 700,000 pairs, we will be at over $1 million in revenue. The sky is the limit!

The business model is important indeed. Somebody must pay you an amount to cover your costs and, over and above that, earn a profit. So, you do need a revenue model and a cost model preferably ones that fit together. In a world in which the numbers are often viewed as sacrosanct, the above business model would do for most.

A Model Anchored in Strategy

But my view is that you can always make up any numbers you want and in fact all revenue forecasts are exercises in fantasy. Is $1.50/pair acceptable? Are there 700,000 users? Saying that those are the numbers doesn t make them real especially when it is someone else s decision to spend/pay. So, I want the business model to be anchored in and arise out of the core features of strategy.

Because the Where-to-Play/How-to-Win (WTP/HTW) pair of choices is the heart of strategy, the business model needs to be embedded in and arise out of that choice pair. The WTP has to specify from what customers you are going to receive revenues. That is central to your business model. And it is not always straightforward in the modern economy. There are many two-sided markets where there is a money side (e.g., advertisers who pay for Google words) and a subsidy side (e.g., searchers who don t pay). Congressional committees may imagine that Google and Facebook are free services because Congress doesn t understand two-sided market business models.

The HTW choice needs to explain how it is you will earn a better margin serving the customers specified in the WTP than your competitors. That can be accomplished either by selling at an average price combined with lower costs or by selling at a higher price combined with average costs. Your HTW has to specify a theory as to why it is, in the WTP specified, you will be able either to earn higher prices or to serve customers at a lower cost structure. That theory needs to specify both how you will get to that position and how you will maintain it. Otherwise, you don t have a business model actually worth having. You can certainly lay it out in a spreadsheet, but it won t be around for long and it certainly won t look like your spreadsheet. That is because someone else will have advantage over you and will slowly but surely crush your business.

In this way, your business model arises out of your WTP/HTW choice. The WTP tells you from which customers you will be garnering revenues and the HTW tells you the level of revenues you can expect and the costs you need to spend to earn those revenues.

The reality check for strategy is the Capabilities and Management Systems (MS) choices that determine whether you can build and maintain the Capabilities that are necessary to win where you have chosen to play. The business model needs to incorporate the costs of building and maintaining these Capabilities. If your HTW requires that you are better at branding to be able to sustain premium pricing, then what resources do you need to spend in advertising on an ongoing basis? With those advertising costs, will you still maintain overall cost proximity. If your HTW requires that you have an advantaged cost position based on scale, does your scale give you the cost economies that you need? If your system requires better quality human resources, does your recruitment system cost too much? These are the kind of reality checks your business model needs to pass or it will be just like most business models: a fantasy.

In the modern economy, there is an important role for your Winning Aspiration (WA) in determining the robustness of your business model. In most industries today, fixed costs have taken over the biggest proportion of the overall cost structure. A hundred years ago, the cost structures of most companies were weighted towards the variable costs associated with producing another unit of the product (or service). For example, building an automobile required lots of raw materials/parts and high variable labor costs, with a modest overlay of fixed costs. Now the biggest portion of the cost structure of most modern companies is in fixed costs like RD, advertising, engineering, managerial overhead, distribution system, IT, etc. The variable costs associated with another unit are often negligible. What is the cost of serving another Facebook user? Close to zero. What is the cost of providing another copy of Office 365? Close to zero. Even a classic product company like PG has greater fixed costs than variable costs today.

With such a cost structure, relative scale is essential to the robustness of the strategy and of the business model. In the context of any defined WTP, the player with the greatest scale will have the most attractive economics because it can spread its fixed costs more broadly than its smaller competitors. As a consequence, it will either be able to spend more in order to differentiate or achieve parity with a lower overall cost structure. For example, if it has a relative market share higher than anyone else, every dollar it spends on advertising will cost it less per unit sold than for any competitor. If instead, a competitor is bigger than you in a given WTP, its economics will be superior and that will play out with it getting relatively stronger over time and while you become relatively weaker.

In this way, each box in the Strategy Choice Cascade both defines and validates your business model. In order to have a business model that works, you need a Winning Aspiration that drives you to achieve the largest position in the chosen Where-to-Play, which has to be twinned with a How-to-Win, which generates the advantage that enables the achievement of the dominant share. And that WTP/HTW choice needs to be supported by Capabilities and Management Systems that can be built and maintained to consistently deliver the form of winning assumed in the WTP/HTW choice. If these choices are sharply made and mutually reinforcing, they will generate a business model that is a reality, not a fantasy.

Practitioner Insights

When you are asked about your business model, don t think of it as something independent of your strategy. Start with your strategy your Winning Aspiration, your Where-to-Play, your How-to-Win, your Capabilities, and your Management System. That will provide a more compelling rationale for why revenues will flow to you and profits over costs will accrue. If they are impatient and just want to know the numbers, you are wasting your time with them. There is no business model without a strategy. And all great strategies, generate a business model that is attractive and persistent.

On the Inseparability of Where-to-Play and How-to-Win

Why Thinking about them Independently will Wreck your Strategy

Dec 28, 2020 7 min read

This 13th Playing to Win/Practitioner Insights (PTW/PI) is a bit of a rant about a particular misuse of the Strategy Choice Cascade that is driving me a bit batty. In response, this PTW/PI is on the inseparability of Where-to-Play (WTP) and How-to-Win (HTW).

The Pervasive Sequencing Error

In the past couple of months, I have watched three se p arate PTW-loving organizations make the same fundamental error in the application of the Strategy Choice Cascade. The first was a national sports organization, the second a publicly traded biotech company, and the third a global consumer products company. In the first two cases, PTW enthusiasts came to me at the start of the process for informal advice as the creator of the strategy framework they had decided to use. In the third, my client asked me to review mid-course progress on a strategy project being performed for it by one of the world s leading strategy consulting firms. These happened in such rapid succession that I decided I had to write about the phenomenon.

In each case, the project was laid out by way of modules of work leading up to workshops with the board of directors or the senior management team. In all three cases, there was research and analysis leading up to a workshop on WTP followed by another tranche of study leading up to a workshop on HTW. That is, there was full consideration first of WTP before the consideration of HTW.

I understand why this happens. The Strategy Choice Cascade visually flows from the upper left to the bottom right, which puts WTP ahead of HTW in the sequence of five questions. It is clear to me, 25 years after creating the model, that the visual cues are more powerful than I imagined at the time. Those cues signal: Answer WTP first and then turn your mind to HTW.

Unfortunately, that drives a fundamental error in the application of the model. No matter how many times I caution against the error, it keeps happening. I sometimes wonder whether I should have put the two questions in a single box. But I don t think so. They are logically separate questions. Putting them together wouldn t solve the problem. There would, I believe, still be the tendency to consider them sequentially because that is the easiest thing to do. It simplifies the thinking. And it is consistent with the compartmentalization of modern business, by which business problems are chopped into narrow slices to tackle them and then assembled as if the pieces will fit together to make a whole. So, it probably feels natural.

The Matched Pair

But it is a terrible way to make progress toward a strategy. WTP and HTW are an inseparably matched pair. Considering them separately does not create productive progress toward a strategy. This is because there is no inherently good (or bad) WTP. People tend to think that a WTP is attractive because it is big, or it is fast-growing, or it features high-margins or low levels of competition. China is often thought of as a highly attractive geographic WTP. But lots of companies, even the leading global ride-hailing company Uber, found it to be the opposite of attractive for them. Two of the world s five most powerful companies, Google and Microsoft, both thought that the smartphone business was an exciting WTP a fast-growing, technologically-sophisticated product, that was one of the biggest product markets in the world with billions of global users and both acquired major smartphone businesses (from Motorola in 2012 and Nokia in 2014, respectively). But despite being tech giants, neither had a HTW for the smartphone business and within a couple of years, both were forced to exit with their tails between their legs and multi-billion-dollar write-offs. Paper companies are forever moving to higher-value-added grades of paper thinking those are great WTPs because prices there are higher, only to find that the higher prices are matched by even higher costs to serve against entrenched competitors. No WTP has merit without an accompanying HTW and there is no exception to this rule.

The worst thing to do is to lock and load on a single WTP before moving to the HTW stage. This happens surprisingly often in my experience. I get emails from people saying: Roger, we have done our Winning Aspiration and chosen our WTP, but now we are terribly stuck on our HTW. What advice do you have for getting unstuck on HTW? My answer is always to toss out the WTP and restart working on both WTP and HTW because if you are down to a single WTP, there likely isn t a HTW for you that matches that particular WTP. If my personal career WTP was to be a National Basketball Association (NBA) player, there would be no available HTW for me other than to grow another 8 inches and replace my slow-twitch muscles with quick-twitch ones. So, like me, they are stuck for a reason. They have narrowed down WTP so far that there just isn t a HTW to be found.

The next worst and probably most common approach is the generation of a list of WTP possibilities that then gets prioritized at a WTP workshop. In my experience, the list is typically very long because in the absence of consideration of HTW, almost any WTP appears interesting. And if you combine this inclination with the modern fetish for going

for quantity in brainstorming, you get a really long list!

Such lists are unhelpful for strategy because the WTPs are purely theoretical without a paired HTW and since there are a lot of them, it is hard for the team doing the strategy work to focus its brainpower on possibilities that really matter i.e., those for which a compelling HTW can be found.

With a long list of WTP possibilities in hand, the vast majority of which are irrelevant, the HTW workshop tends to be an exercise in going drone-like through the WTP possibilities and coming up with the best way to play in each. Again, my experience is that because the HTW task is diffused in this way, the team rarely comes up with a fabulous HTW to pair with one of the WTP possibilities because it never focuses enough on the finding that ideal pair. It is not as though it doesn t ever happen. It is just far less likely.

The Better Way

Though the thought process is more daunting, the better way is to look for WTP/HTW pairs. When a potential WTP possibility comes to mind, immediately ask: is there a HTW that would make this a winning combination? And if not, could the WTP be tweaked to make for a better pair? If not, then discard the WTP entirely and move on. Don t add it to a list of useless WTP options. It is this process of back and forth between WTP ideas and potential HTW matches that creates something real and powerful at the heart of strategy: the WTP/HTW matched pair.

It is an iterative process. The search needs to be patient because the prize is great: a HTW that is perfectly suited to its WTP; a WTP that by its limitations makes the HTW the strongest it can be. The Southwest Airlines WTP of short haul flights between secondary airports, featuring a single class of service enabled the HTW of the lowest cost airline in America. Longer hauls and multiple classes of service would have been a WTP that would have weakened the HTW making the overall pair weaker. The Four Seasons WTP of hotel management (not hotel development and ownership) in the luxury space enabled the HTW of a distinctive form of service delivered in medium-sized hotels. A broader WTP would have damaged the power of the HTW.

The separation of this naturally matched pair simply makes the creation of strategy less effective with no other benefit than the thinking process is easier hardly a worthwhile tradeoff.

Practitioner Insight

Never forget that WTP and HTW are an inseparably matched pair and are the heart of strategy. Any decoupling of them will make your strategy weaker so don t, even if it feels easier. Tackle the challenge of creating a matched pair. And never makes lists of potential WTPs. Consider the HTW for every WTP before moving on to the consideration of another WTP.

Consider your Winning Aspiration. But don t hold onto it tightly until you have created a linkage with your WTP/HTW pair. Toggle back and forth to forge a match between your Winning Aspiration and your WTP/HTW pair. No Winning Aspiration has any merit if it can t be matched with a WTP/HTW pair. And then do the reality check to ensure that you can build the Capabilities and the Management Systems to bring alive the WPT/HTW pair. And if you can t, go back and tweak the WTP/HTW pair until you can. That is how you build a great strategy centered on an inseparable WTP/HTW matched pair.

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