XT … A Playbook For Strategy by AG Lafley

How Will You Win?
Where to play and how to win are intimately tied, and together they form the very heart of strategy. While where to play is about determining the playing field, how to win is about defining the method by which you will win on that field. Importantly, how to win must be considered within the context of the where-to-play choice: it is not how to win generally, but how to win given a specific where-to-play choice. The where-to-play and how-to-win choices flow from and reinforce one another.  So, if a clothing company chooses to compete for the loyalty of young women aged 16-24, it needs to build a brand, offer products and distribute them in a way that distinctively and powerfully speaks to that demographic. It needs to fit the where-to-play and how-to-win choices together to make the company stronger.

To determine how to win, an organization must figure out what will enable it to create unique value, and it must decide how it can sustainably deliver that value to customers in way that is distinct from its completion. This is what constitutes competitive advantage—the specific way a firm leverages its advantages to create superior value for a customer and superior returns for the firm. Choosing how to win is about finding and building on sources of competitive advantage.

To be successful, how-to-win choices must be appropriate to the specific organizational context and must be very difficult to copy. P&G’s competitive advantages are its ability to understand its core consumers and to create differentiated brands on the basis of this understanding. No company in its industry outpaces P&G along these dimensions.  On the playing field it has selected,
P&G wins by relentlessly building its brands and by producing distinctive, innovative products and services. It leverages global scale and deep partnerships with suppliers and channel customers to deliver distinctive retail distribution and consumer value in its chosen markets.

Of course, P&G’s where-to-play and how-to-win-choices aren’t appropriate for every context. Every organization must find a combination of where to play and how to win that is appropriate, doable and decisive for it, within its unique context. With where to play, there is a specific set of considerations that apply across contexts (geography, customer segments, channel, product categories and stages of production); with how to win, the set of considerations is less structured and categorical.

There is no checklist from which to select a plausible way to win. Selecting how to win entails matching a firm’s advantages (both existing and potential) against its where-to-play choices.  But determining how to win does begin with a single, crucial choice: will the organization win on the basis of having lower costs than the other players in the industry (like Walmart does in retail, or like M&M/Mars does in confectionary), or on the basis of brand differentiation (like Apple or Starbucks do). In a low-cost strategy, as the name suggests, profit is driven by having a lower cost structure than competitors. In a differentiation strategy, on the other hand, profit is driven by a price premium, derived because the company’s products or services are perceived to be distinctively more valuable to customers than competitive offerings. Both cost leadership and differentiation can produce a sustainable winning advantage.

Cost leaders and differentiators behave very differently on the basis of very different ways to win. With cost leaders, managers work to understand cost drivers, to remove costs from the system, to standardize and to rationalize. At a differentiator, managers work to deepen their understanding of customers, to build the brand with customers in mind, to delight current customers and to create new ones. Both work towards a specific kind of competitive advantage, a particular way to win.

Download the file for XT … A Playbook For Strategy by AG Lafley