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Book Summary —Playing to Win: How Strategy Really Works

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1 paragraph summary:

Game-chaning. The 5 step instruction to start your strategy.

Real Strategy

Really, strategy is about making specific choices to win in the marketplace.

A strategy discussion is not an idea review. A strategy discussion is not a budget or a forecast review. A strategy discussion is how we are going to accomplish our growth objectives in the next three to five years.

Strategy is sustainable competitive advantage over its rivals by “deliberately choosing a different set of activities to deliver unique value.” Strategy therefore requires making explicit choices—to do some things and not others—and building a business around those choices.

In short, strategy is choice. More specifically, strategy is an integrated set of choices that uniquely positions the firm in its industry so as to create sustainable advantage and superior value relative to the competition.

Too often, CEOs in particular will allow what is urgent to crowd out what is really important. When an organizational bias for action drives doing, often thinking falls by the wayside.

But it is only through making and acting on choices that you can win. Yes, clear, tough choices force your hand and confine you to a path. But they also free you to focus on what matters.

Strategy is a coordinated and integrated set of five choices: a winning aspiration, where to play, how to win, core capabilities, and management systems.

  1. What is your winning aspiration? The purpose of your enterprise, its motivating aspiration.
  2. Where will you play? A playing field where you can achieve that aspiration.
  3. How will you win? The way you will win on the chosen playing field.
  4. What capabilities must be in place? The set and configuration of capabilities required to win in the chosen way.
  5. What management systems are required? The systems and measures that enable the capabilities and support the choices.

Strategy can be created and refined at every level of the organization using the choice cascade framework.

Strategies that can be explained in a few words are more likely to be empowering and motivating; they make it easier to make subsequent choices and to take action.

What Strategy is Not

Defining strategy as a vision or mission. A lofty mission isn’t a strategy. It is merely a starting point.

They offer no guide to productive action and no explicit road map to the desired future. They don’t include choices about what businesses to be in and not to be in.

They define strategy as a plan. Plans and tactics are also elements of strategy, but they aren’t enough either. A detailed plan that specifies what the firm will do (and when) does not imply that the things it will do add up to a sustainable competitive advantage.

Optimization has a place in business, but it isn’t strategy.

They define strategy as following best practices. Every industry has tools and practices that become widespread and generic. Some organizations define strategy as benchmarking against competition and then doing the same set of activities but more effectively.

Sameness isn’t a strategy. It is a recipe for mediocrity.

Pitfalls

The first is to refuse to choose, attempting to play in every field all at once. The second is to attempt to buy your way out of an inherited and unattractive choice. The third is to accept a current choice as inevitable or unchangeable.

The do-it-all strategy: failing to make choices, and making everything a priority. Remember, strategy is choice.

The Don Quixote strategy: attacking competitive “walled cities” or taking on the strongest competitor first, head-to-head. Remember, where to play is your choice. Pick somewhere you can have a chance to win.

The Waterloo strategy: starting wars on multiple fronts with multiple competitors at the same time. No company can do everything well. If you try to do so, you will do everything weakly.

The something-for-everyone strategy: attempting to capture all consumer or channel or geographic or category segments at once. Remember, to create real value, you have to choose to serve some constituents really well and not worry about the others.

The dreams-that-never-come-true strategy: developing high-level aspirations and mission statements that never get translated into concrete where-to-play and how-to-win choices, core capabilities, and management systems. Remember that aspirations are not strategy.

The program-of-the-month strategy: settling for generic industry strategies, in which all competitors are chasing the same customers, geographies, and segments in the same way. The choice cascade and activity system that supports these choices should be distinctive.

1. Winning Aspiration

The winning aspiration broadly defines the scope of the firm’s activities.

That is the single most crucial dimension of a company’s aspiration: a company must play to win. To play merely to participate is self-defeating. It is a recipe for mediocrity. Winning is what matters — and it is the ultimate criterion of a successful strategy.

If it doesn’t seek to win, it is wasting the time of its people and the investments of its capital providers. But to be most helpful, the abstract concept of winning should be translated into defined aspirations. Aspirations are statements about the ideal future. At a later stage in the process, a company ties to those aspirations some specific benchmarks that measure progress toward them.

Winning is worthwhile; a significant proportion (and often a disproportionate share) of industry value-creation accrues to the industry leader. But winning is also hard. It takes hard choices, dedicated effort, and substantial investment.

Aspirations can be refined and revised over time. However, aspirations shouldn’t change day to day; they exist to consistently align activities within the firm, so should be designed to last for some time.

Then there is competition. When setting winning aspirations, you must look at all competitors and not just at those you know best.

2. Where to Play

Industry segments are distinctive subsets of the larger industry along lines such as geography, product or service type, channel, customer or consumer needs, and so on.

Understand the structural attractiveness of the different segments. Other things being equal, a firm would want to play in segments that have higher profit potential based on their structural characteristics.

Geography

  • In what countries or regions will you seek to compete?

Product Type

  • What kinds of products and services will you offer?

What business are you in?

Most companies, if you ask them what business they’re in, will tell you what their product line is or will detail their service offering. Many handheld phone manufacturers, for example, would say they are in the business of making smartphones. They would not likely say that they are in the business of connecting people and enabling communication any place, any time. But that is the business they are actually in — and a smartphone is just one way to accomplish that.

Consumer Segment

  • What groups of consumers will you target? In which price tier? Meeting which consumer needs?

Regardless of whether a firm wishes to be a cost leader or a differentiator, it needs to understand precisely what customers (its own and its competitors’ customers) value. This means understanding underlying needs.

Distribution Channels

  • How will you reach your customers? What channels will you use?

An understanding of the channel customer value equation can help inform both the businesses you should be in and how you can win there.

Vertical Stage of Production

  • In what stages of production will you engage? Where along the value chain? How broadly or narrowly?

3. How to Win

Winning means providing a better consumer and customer value equation than your competitors do, and providing it on a sustainable basis.

There are just two generic ways of doing so: cost leadership and differentiation.

While all companies make efforts to control costs, there is only one low-cost player in any industry — the competitor with the very lowest costs. Having lower costs than some but not all competitors can enable a firm to stick around and compete for a while. But it won’t win. Only the true low-cost player can win with a low-cost strategy.

The company offers products or services that are perceived to be distinctively more valuable to customers than are competitive offerings, and is able to do so with approximately the same cost structure that competitors use.

Life inside a cost leader looks very different from life inside a differentiator. In a cost leader, managers are forever looking to better understand the drivers of costs and are modifying their operations accordingly. In a differentiator, managers are forever attempting to deepen their holistic understanding of customers to learn how to serve them more distinctively.

4. Capabilities

An organization’s core capabilities are those activities that, when performed at the highest level, enable the organization to bring its where-to-play and how-to-win choices to life.

They are best understood as operating as a system of reinforcing activities.

Identifying the capabilities required to deliver on the where-to-play and how-to-win choices crystallizes the area of focus and investment for the company. It enables a firm to continue to invest in its current capabilities, to build up others, and to reduce the investment in capabilities that are not essential to the strategy.

These reinforcing relationships make each capability stronger, which is an essential characteristic of an activity system: the system as a whole is stronger than any of the component capabilities, insofar as those capabilities fit with and reinforce one another.

These shared capabilities — the ones that run through multiple divisions or units and the organization overall — create reinforcing rods that link different parts of the organization together, just as steel reinforcing rods run from floor to floor in a concrete building to keep it standing. These reinforcing rods help drive strategy forward at all levels.

5. Management Systems

The last box in the strategic choice cascade is the most neglected. Often, senior management teams formulate strategy and then broadcast key themes to the rest of the company, expecting quick and definitive action. But even if you set a winning aspiration, determine where to play and how to win, and define the capabilities required, strategy can still fail.

Without supporting structures, systems, and measures, strategy remains a wish list, a set of goals that may or may not ever be achieved. To truly win in the marketplace, a company needs

  1. a robust process for creating, reviewing, and communicating about strategy;
  2. it needs structures to support its core capabilities; and
  3. it needs specific measures to ensure that the strategy is working.

It’s an old saying that what gets measured gets done. There’s more than a little truth to this.

Measurement provides focus and feedback. Focus comes from an awareness that outcomes will be examined, and success or failure noted, creating a personal incentive to perform well. Feedback comes from the fact that measurement allows the comparison of expected outcomes with actual outcomes and enables you to adjust strategic choices accordingly.

Every company needs systems to formulate, refine, and clearly communicate the essentials of the strategy choice cascade throughout the company. It needs systems to support and invest in its core capabilities. It needs systems to measure attainment of its goals.

How to have strategy conversations

No individual, and certainly not the CEO, would try to craft and deliver a strategy alone. Creating a truly robust strategy takes the capabilities, knowledge, and experience of a diverse team — a close-knit group of talented and driven individuals, each aware of how his or her own effort contributes to the success of the group and all dedicated to winning as a collective.

Working through the framework takes both patience and imagination. It also takes teamwork. Any new strategy is created in a social context — it isn’t devised by an individual sitting alone in an office, thinking his or her way through a complex situation. Rather, strategy requires a diverse team with the various members bringing their distinct perspectives to bear on the problem. A process for working collaboratively on strategy is essential, because all companies are social entities, made up of a diverse network of individuals with different agendas and ideas. Those people need to think, communicate, decide, and take action together, in order to accomplish anything meaningful. The logic flow, as we have seen, is a tool that simplifies thinking about strategy by laying out its foundational analytical components and providing a consistent way to put the pieces together.

The best way to explore that possibility is to understand not what others see, but what they do not.

“I have a view worth hearing, but I may be missing something.” It sounds simple, but this stance has a dramatic effect on group behavior if everyone in the room holds it.

So, they advocate as clearly as possible for their own perspective. But because they remain open to the possibility that they may be missing something, two very important things happen. One, they advocate their view as a possibility, not as the single right answer. Two, they listen carefully and ask questions about alternative views.

Contrast this to managers who come into the room with the objective of convincing others they are right. They will advocate their position in the strongest possible terms, seeking to convince others and to win the argument. They will be less inclined to listen, or they will listen with the intent of finding flaws in other arguments. Such a stance is a recipe for discord and impasse.

(1) Advocating your own position and then inviting responses (e.g., “This is how I see the situation, and why; to what extent do you see it differently?”);

(2) paraphrasing what you believe to be the other person’s view and inquiring as to the validity of your understanding (e.g., “It sounds to me like your argument is this; to what extent does that capture your argument accurately?”); and

(3) explaining a gap in your understanding of the other person’s views, and asking for more information (e.g., “It sounds like you think this acquisition is a bad idea. I’m not sure I understand how you got there. Could you tell me more?”).

Asking a single question can change everything: what would have to be true? This question helpfully focuses the analysis on the things that matter. It creates room for inquiry into ideas, rather than advocacy of positions. It encourages a broader consideration of more options, particularly unpredictable ones.

Rather than have them talk about what they thought was true about the various options, I would ask them to specify what would have to be true for the option on the table to be a fantastic choice. The result was magical.

Don’t attempt to convince clients which choice is best; run a process that enables them to convince themselves.

CEO = Chief External Officer

CEO is an extraordinarily lonely job when done well. The CEO is the chief external officer with primary responsibility for translating the meaningful outside into winning strategies for the business and the organization.

The CEO may well be tempted to turn his or her attention inward as well, but consciously choosing a very few external advisers and counselors can help a CEO maintain and sustain that all-important external focus.

In strategy, there are no absolute answers or sure things, and nothing lasts forever. Having a clear definition of winning, a robust analytical framework such as the logic flow, and a thoughtful review process can help organize thinking and improve analysis, but even still, a successful outcome is not guaranteed.

In the end, building a strategy isn’t about achieving perfection; it’s about shortening your odds.

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