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Chapter Two

What Is Winning

Aspirations are the guiding purpose of an enterprise. Think of the Starbucks mission statement: “To inspire and nurture the human spirit—one person, one cup, and one neighborhood at a time.” Or Nike’s: “To bring inspiration and innovation to every athlete* in the world.” (The additional note, indicated by the asterisk, reads: “*If you have a body, you’re an athlete.”) And McDonald’s: “Be our customers’ favorite place and way to eat.” Each is a statement of what the company seeks to be and a reflection of its reason to exist. But a lofty mission isn’t a strategy. It is merely a starting point.

The first box in the strategic choice cascade—what is our winning aspiration?—defines the purpose of your enterprise, its guiding mission and aspiration, in strategic terms. What does winning look like for this organization? What, specifically, is its strategic aspiration? These answers are the foundation of your discussion of strategy; they set the context for all the strategic choices that follow.

There are many ways the higher-order aspiration of a company can be expressed. As a rule of thumb, though, start with people (consumers and customers) rather than money (stock price). Peter Drucker argued that the purpose of an organization is to create a customer, and it’s still true today. Consider the mission statements noted above. Starbucks, Nike, and McDonald’s, each massively successful in its own way, frame their ambitions around their customers. And note the tenor of those aspirations: Nike wants to serve every athlete (not just some of them); McDonald’s wants to be its customers’ favorite place to eat (not just a convenient choice for families on the go). Each company doesn’t just want to serve customers; it wants to win with them. And 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. Once the aspiration to win is set, the rest of the strategic questions relate directly to finding ways to deliver the win.

Why is it so important to make winning an explicit aspiration? 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. Lots of companies try to win and still can’t do it. So imagine, then, the likelihood of winning without explicitly setting out to do so. When a company sets out to participate, rather than win, it will inevitably fail to make the tough choices and the significant investments that would make winning even a remote possibility. A too-modest aspiration is far more dangerous than a too-lofty one. Too many companies eventually die a death of modest aspirations.

Playing to Play

Consider one of the costliest strategic gambles of the last century: General Motors’ decision to launch Saturn. The context is important, of course. In the 1950s, at the end of legendary chairman Alfred P. Sloan’s tenure, GM had more employees than did any other company in the world and owned more than half of the US automotive market. It was the biggest of the Big Three and, for a time, the greatest and most powerful company on earth. But Sloan retired. Tastes changed, partly in response to the oil shocks of the 1970s. An incursion of cheaper, fuel-efficient imports began to make GM’s lineup look old-fashioned and unaffordable.

By the 1980s, GM’s core US brands—including Oldsmobile, Chevy, and Buick—were in decline. Younger car buyers were turning to Toyota, Honda, and Nissan, choosing these automakers’ smaller and more economical models. Costs were a growing concern too; as GM’s unionized workforce aged, generous retiree benefits contributed to higher and higher legacy costs—and those costs were passed on to car buyers. Meanwhile, relations with the United Auto Workers were poor and not getting any better, as GM restructured operations, closed plants, shifted resources, and laid off tens of thousands of workers.

In 1990, at a strategic crossroads, GM made a bold choice. It launched a new brand to compete in the small-car market. Saturn—“a different kind of company, a different kind of car”—would be GM’s first new brand in almost seventy years, and it marked the first time GM would use a subsidiary, rather than a division, to make and sell cars. The goal, per then chairman Roger Smith, was to “sell a car at the lower end of the market and still make money.”¹ In short, Saturn was GM’s answer to the Japanese imports that threatened to dominate the small-car market; it was a defensive strategy, a way of playing in the small-car segment, designed to protect what remained of the ground GM was losing.

GM set up a separate Saturn head office. It negotiated a simplified, flexible deal with the United Auto Workers for Saturn’s Spring Hill plant, guaranteeing workers greater control and profit sharing in exchange for lower base wages. Saturn also took a remarkably different approach to customer service, beginning with a no-haggle, one-price policy at all its dealerships. At Saturn, “customers received personal attention usually found only in luxury showrooms … As a matter of policy, employees would drop what they were doing and cheer in the showroom when a customer received the keys to a new Saturn.”² Launched with much fanfare, Saturn looked to be GM’s silver bullet—the innovative strategic initiative that would finally turn things around.

As it turns out, Saturn did not turn things around. Some twenty years and, by analyst estimates, $20 billion in losses later, Saturn is gone. The division was shuttered and all of its dealerships closed by the end of 2010. GM, emerging from Chapter 11 bankruptcy, is now a shadow of its former self, and its US market share is less than 20 percent.³ Launching Saturn didn’t cause GM’s bankruptcy, but it didn’t help much, either. Saturn vehicles, though they garnered loyalty from owners, never reached the critical mass needed to sustain a full lineup of cars or a national dealer network. As one former GM director said of Saturn, “it may well be the biggest fiasco in automotive history since Ford brought out the Edsel.”⁴

The folks running Saturn aspired to participate in the US small-car segment with younger buyers. By contrast, Toyota, Honda, and Nissan all aspired to win in that segment. Guess what happened? Toyota, Honda, and Nissan all aimed for the top, making the hard strategic choices and substantial investments required to win. GM, through Saturn, aimed to play and invested to that much lower standard. Initially Saturn did OK as a brand. But it needed substantial resources to keep up against Toyota, Honda, and Nissan, all of which were investing at breakneck speed. GM couldn’t and wouldn’t keep up. Saturn died, not because it made bad cars, but because its aspirations were simply too modest to keep it alive. The aspirations did not spur winning where-to-play and how-to-win choices, capabilities, and management systems.

To be fair, GM had myriad challenges that made playing to win a daunting prospect—troubling union relations, oppressive legacy health-care and pension costs, and difficult dealer regulations. However, playing to play, rather than seeking to play to win, perpetuated the overall corporate problems rather than overcoming them. Contrast the approach at GM to the approach at P&G, where the company plays to win whenever it chooses to play. And the approach holds even in the unlikeliest of places. Playing to win is reasonably straightforward to contemplate in a consumer market. But what does it look like for an internal, shared-services function? Even there, you can play to win, as Filippo Passerini, president of P&G’s global business services (GBS) unit demonstrates.

Playing to Win

At the end of the dot-com bubble, the IT world was in turmoil. The NASDAQ had melted down, taking both the credibility of the high-tech industry and the broader market indexes with it, throwing the economy into a recession. Yet, despite the crash, it was clear that spending on IT infrastructure and services would continue to increase. IT services were far from a core competency for most companies (including P&G), and the costs and complexities of providing IT services in-house were daunting. Fortunately, riding to the rescue was a new breed of service provider: the business process outsourcer (BPO). These companies (including IBM, EDS, Accenture, TCS, and Infosys) would provide a range of IT services from the outside, managing complexity for a fee. As the postcrash dust cleared, rapidly digitizing companies were faced with decisions on how much to use BPOs, which BPO partner to select, and how best to do so. It wasn’t easy; the implications of a poor choice could be millions of dollars in extra costs and untold headaches down the line.

At P&G, many of the operations that might be outsourced had been gathered together in a 1999 reorganization. This GBS function was responsible for business services including IT, facilities management, and employee services. In 2000, three options for the future of GBS were being actively explored: stay the course and continue to run GBS internally; spin off GBS (partly or wholly) to allow it to become a major player in the BPO business; or outsource most of GBS to one of the biggest existing BPO companies.

It was not an easy decision. The stock markets and economy were cratering, as were the stock prices of the publicly traded BPOs. If completed, the deal would have been highly complex and at an unprecedented size for the global BPO industry. P&G had never outsourced or sold anything affecting this many employees, so the impact on morale and culture was highly uncertain. As the options were made known to employees, some employees feared the company would sell loyal P&G employees into “slavery.”

The easiest thing would have been to declare that the issue was too divisive and to stick with the status quo. After all, GBS was working just fine. It was playing well in its space and delivering high-quality services to a wide range of internal customers. Alternatively, P&G could have gone with the next most conventional option: a single large deal with a premier BPO firm like IBM Global Services or EDS. Finally, the company could have acknowledged that a large, in-house global services organization was an inefficient use of P&G resources and spun out GBS into its own BPO. Any of these choices might have seemed sensible given the circumstances. But none effectively answered the question of how P&G could win with its global services.

The senior team wasn’t convinced that all of the options were on the table. So, Filippo Passerini, who had a strong IT background and marketing management experience, was asked to think through the existing options and, if appropriate, suggest additional possibilities. Passerini struggled with the conventional choice. In theory, outsourcing to a single large BPO would create considerable economies of scale. It was clear that the deal would be good for the BPO partner, which would secure the biggest outsourcing deal in the industry’s history. But there was no obvious reason why the deal would help P&G to win. P&G wanted more than cost-effectiveness and a commitment to a predefined service level from an outsourcing deal. It wanted flexibility, a partner that could and would innovate with P&G to create value that didn’t exist in the current structure.

Passerini soon came up with a new option. Instead of signing one deal, P&G would outsource various GBS activities to best-of-breed BPO partners, finding one ideal partner to manage facilities, another to manage IT infrastructure, and so on. The logic of this best-of-breed option was that P&G’s needs are highly varied and that a variety of more specialized partners would be most capable of meeting the needs. Passerini saw that specialization could increase the quality and lower the cost of BPO solutions, and believed that P&G could manage the complexity of multiple relationships to create more value than it could through one relationship. Plus, there was risk mitigation in having multiple partners, and they could be benchmarked against one another to promote better performance. Finally, outsourcing would free up remaining GBS resources to invest in P&G core capabilities and build sustainable competitive advantage.

The case for a best-of-breed approach was compelling. In 2003, P&G entered BPO partnerships with Hewlett-Packard in IT support and applications, IBM Global Services in employee services, and Jones Lang Lasalle in facilities management. Importantly, Passerini didn’t simply select the biggest or best-known player in each BPO space. In fact, as he explains, he chose partners considering another essential criterion: “For each one of them, there was a common denominator: interdependency. It played out in different ways. For HP, they were a distant fourth player in the industry. With P&G, they gained instantaneous visibility and credibility. As important as they are to us, because all of our systems operate on the HP platform now, we are equally important to them [as their lead customer]. For each one of the [best-in-breed partners], the benefit was different, but each one of them became interdependent with P&G.”⁵ Passerini had crafted a richer way of thinking about the BPO relationship, one that asked, under what conditions can we help each other win?

Passerini’s approach has been a success. The three original partnerships have performed well and have led to a handful of deeper partnerships for different services. The cost of services has fallen. Meanwhile, quality has risen and service levels have improved. Satisfaction rates for the six thousand employees who transferred to the BPO partners went up too; they are now a core part of their new organizations rather than a noncore part of P&G. And the approach has freed up P&G’s GBS team members to focus on innovating and building IT systems that support P&G strategic choices and capabilities, like designing state-of-the-art virtual shopping experiences for consumer insights work and a desktop-based “cockpit” that provides P&G leaders with at-a-glance decision-making tools. GBS has been able to outsource the utilities element of P&G’s shared services and focus internally on areas where it can build strategic advantage. P&G’s approach to this set of transactions has become a model for other organizations, as multiple rather than single-source BPOs are becoming a preferred industry norm.

If the aspiration for GBS was to come to a good-enough solution, then the best-of-breed option would never have been created. But the aspiration was considerably higher. The questions asked were these: What choice would help P&G win? And how could that choice create sustainable competitive advantage? These questions continue to be asked. Now head of a more agile GBS organization, Passerini thinks about providing service to P&G in terms of creating a winning value equation. “I fear becoming a commodity,” he says. “[In IT] you need to be distinctive to avoid commoditization. We have been on a quest to deliver unique value to P&G. Whatever is distinctive and unique, we focus on; whatever is commodity, because there is not competitive advantage in doing it inside, we outsource.”

The desire to win spurs a helpfully competitive mind-set, a desire to do better whenever possible. For this reason, GBS competes for its internal customers. Passerini explains: “We don’t mandate new services; we offer them [to businesses and functions] at a cost. If the business units like them, they will buy them. If they don’t like them, they will pass.” This open market provides important feedback and keeps GBS thinking about how to win with its internal customers and create new value. So much so that Passerini famously stood at a global leadership team meeting and promised: “Give me anything I can turn into a service, and I’ll save you seventeen cents on the dollar.” It was a provocative offer, and one that set the tone for his team. Good enough wasn’t an option. Providing services wasn’t the strategy. Providing better services at higher quality and lower costs—while serving as an innovation engine for the company—was the strategy. It was a strategy aimed at winning.

With Those Who Matter Most

To set aspirations properly, it is important to understand who you are winning with and against. It is therefore important to be thoughtful about the business you’re in, your customers, and your competitors. We asked P&G’s businesses to focus on winning with those who matter most and against the very best. We wanted them to focus outward on their most important consumers and very best competitors, rather than inward on their own products and innovations.

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. Or think of a skin-care company. It is far more likely to say it makes a line of skin-care products than to say it is in the business of helping women have healthier, younger-looking skin or helping women feel beautiful. It’s a subtle difference, but an important one.

The former descriptions are examples of marketing myopia, something economist Theodore Levitt identified a half-century ago and a danger that is alive and well today. Companies in the grips of marketing myopia are blinded by the products they make and are unable to see the larger purpose or true market dynamics. These companies spend billions of dollars making their new generation of products just slightly better than their old generation of products. They use entirely internal measures of progress and success—patents, technical achievements, and the like—without stepping back to consider the needs of consumers and the changing marketplace or asking what business they are really in, which consumer need they answer, and how best to meet that need.

The biggest danger of having a product lens is that it focuses you on the wrong things—on materials, engineering, and chemistry. It takes you away from the consumer. Winning aspirations should be crafted with the consumer explicitly in mind. The most powerful aspirations will always have the consumer, rather than the product, at the heart of them. In P&G’s home-care business, for instance, the aspiration is not to have the most powerful cleanser or most effective bleach. It is to reinvent cleaning experiences, taking the hard work out of household chores. It is an aspiration that leads to market-shifting products like Swiffer, the Mr. Clean Magic Eraser, and Febreze.

Against the Very Best

Then there is competition. When setting winning aspirations, you must look at all competitors and not just at those you know best. Of course, start with the usual suspects. Look at your biggest competitors, your historical competitors—for P&G, they are Unilever, Kimberly-Clark, and Colgate-Palmolive. But then expand your thinking to focus on the best competitor in your space, looking far and wide to determine just who that competitor might be.

This was the approach that we sought to foster at P&G. In different industries and categories, the best competitors were often found to be local companies, private-label competitors, and smaller consumer-goods companies. In this way, the home-care team came to focus on Reckitt-Benckiser (makers of Calgon, Woolite, Lysol, and Air Wick).

It wasn’t easy to convince the team leaders to take Reckitt-Benckiser more seriously. But looking at the Reckitt-Benckiser competitive position versus P&G’s—the competitor’s performance results versus P&G’s—was illustrative. P&G had a run of six years of strong revenue and double-digit earnings per share growth, and Reckitt-Benckiser was outperforming even that. It wasn’t so much about Reckitt-Benckiser itself as it was about getting the general managers to question their assumptions and their current judgments. The push was to ask, “Who really is your best competitor? More importantly, what are they doing strategically and operationally that is better than you? Where and how do they outperform you? What could you learn from them and do differently?” Looking at the best competitor, no matter which company it might be, provides helpful insights into the multiple ways to win.

Summing Up

The essence of great strategy is making choices—clear, tough choices, like what businesses to be in and which not to be in, where to play in the businesses you choose, how you will win where you play, what capabilities and competencies you will turn into core strengths, and how your internal systems will turn those choices and capabilities into consistently excellent performance in the marketplace. And it all starts with an aspiration to win and a definition of what winning looks like.

Unless winning is the ultimate aspiration, a firm is unlikely to invest the right resources in sufficient amounts to create sustainable advantage. But aspirations alone are not enough. Leaf through a corporate annual report, and you will almost certainly find an aspirational vision or mission statement. Yet, with most corporations, it is very difficult to see how the mission statement translates into real strategy and ultimately strategic action. Too many top managers believe their strategy job is largely done when they share their aspiration with employees. Unfortunately, nothing happens after that. Without explicit where-to-play and how-to-win choices connected to the aspiration, a vision is frustrating and ultimately unfulfilling for employees. The company needs where and how choices in order to act. Without them, it can’t win. The next chapter will turn to the question of where to play.

WINNING ASPIRATION DOS AND DON’TS

Do play to win, rather than simply to compete. Define winning in your context, painting a picture of a brilliant, successful future for the organization.

Do craft aspirations that will be meaningful and powerful to your employees and to your consumers; it isn’t about finding the perfect language or the consensus view, but is about connecting to a deeper idea of what the organization exists to do.

Do start with consumers, rather than products, when thinking about what it means to win.

Do set winning aspirations (and make the other four choices) for internal functions and outward-facing brands and business lines. Ask, what is winning for this function? Who are its customers, and what does it mean to win with them?

Do think about winning relative to competition. Think about your traditional competitors, and look for unexpected “best” competitors too.

Don’t stop here. Aspirations aren’t strategy; they are merely the first box in the choice cascade.

STRATEGY AS WINNING

A.G. Lafley

In my now forty-plus years in business, I have found that most leaders do not like to make choices. They’d rather keep their options open. Choices force their hands, pin them down, and generate an uncomfortable degree of personal risk. I’ve also found that few leaders can truly define winning. They generally speak of short-term financial measures or a simple share of a narrowly defined market. In effect, by thinking about options instead of choices and failing to define winning robustly, these leaders choose to play but not to win. They wind up settling for average industry results at best.

The P&G I joined in the late 1970s was not very good at making choices and defining winning. In June 1977, I reported for duty as a brand assistant in the US laundry division, affectionately known as Big Soap. At the time, P&G sold fifteen laundry detergent and laundry soap brands and five dish detergent brands, considerably more than consumers needed or wanted, and more than its retail customers could profitably distribute, merchandise, and sell. Today, P&G has five laundry and three dish brands. Meanwhile, the business has consistently grown its net sales, market share, gross and operating margin, and value creation. Most importantly, P&G became the clear-cut leader in the US market. Once-formidable competitors Colgate-Palmolive and Unilever have effectively exited the categories in the United States; they’ve turned their remaining brands into contract-manufactured store brands, which in most cases are a weak third player to P&G and private-label brands. P&G’s victory in the North American laundry category is the culmination of a series of clear, connected, and mutually reinforcing strategic choices that began to be made in the early 1980s. A series of sector, category, and brand leaders have committed to winning in this category and have successfully found ways to do so.

Even as P&G got better at defining winning at the brand and category level, it hasn’t always had the same clarity at the company level, which has resulted in periods of underperformance. In the early 1980s, company leadership was frustrated by slowing top-line volume and sales growth rates and gave the direction to stimulate top-line growth organically and through acquisition. Without a clear strategy as to where to play or how to win, the result was a mishmash of acquisitions that never returned the cost of capital (Orange Crush, Ben Hill Griffin, Bain de Soleil, et al.) and a raft of failed new brands and new products, including Abound, Citrus Hill, Cold Snap, Encaprin, Solo, and Vibrant. In 1984–1985, the company experienced its first down profit year since World War II. In 1986, it took its first major restructuring and write-off. At that point, the call went out to Michel Porter and Monitor. It was P&G’s first experience with business strategy, and I was fortunate to be one of the guinea pigs in Porter’s first class.

Unfortunately, the first inoculation didn’t take. When the business began to get better, thanks to another major restructuring and stronger international growth, and the short-term financial results began to improve, P&G forgot most of what it had learned. When top-line growth slowed again in the late 1990s, the company reverted to the same helter-skelter, new-categories and new-brands, and M&A approach. This time, the bets were even bigger on new products and new technologies, including robots to clean homes, paper cups and plates, even new retail formats. And acquisitions ranged more broadly, including the PUR water company and the Iams pet food company. P&G seriously looked at Eastman Kodak Company, lost an auction to Pfizer for American Home Products, and pursued Warner-Lambert in an attempt to buy its way into the pharmaceuticals business. Not surprisingly, the wheels came off again.

By the time of my election to CEO in 2000, most of P&G’s businesses were missing their goals, many by a wide margin. The company was overinvested and overextended. It was not winning with those who mattered most—consumers and customers. When I visited all our top retailers in my first thirty days on the job, I found that P&G was their biggest supplier but nowhere near their best supplier. Consumers were abandoning P&G, as evidenced by declining trial rates and market share on most of our leading brands.

I was determined to get P&G’s strategy right. To me, right meant that P&G would focus on achievable ways to win with the consumers who mattered the most and against the very best competition. It meant leaders would make real strategic choices (identifying what they would do and not do, where they would play and not play, and how specifically they would create competitive advantage to win). And it meant that leaders at all levels of the company would become capable strategists as well as capable operators. I was going to teach strategy until P&G was excellent at it.

I wanted my team to understand that strategy is disciplined thinking that requires tough choices and is all about winning. Grow or grow faster is not a strategy. Build market share is not a strategy. Ten percent or greater earnings-per-share growth is not a strategy. Beat XYZ competitor is not a strategy. A strategy is a coordinated and integrated set of where-to-play, how-to-win, core capability, and management system choices that uniquely meet a consumer’s needs, thereby creating competitive advantage and superior value for a business. Strategy is a way to win—and nothing less.