How Strategy Really Works

How Strategy Really Works: The 1993 HBR article ‘Customer Intimacy and Other Value Disciplines’ argued that  every company had to become champions of one of three value disciplines —  operational excellence, customer intimacy, or product leadership. Since that  book was published, virtually every business meeting I’ve been in has used at  least one of these phrases to describe strategy. Value disciplines are treated  as if they were gospel.

In the recently-published book ‘Playing to Win: How Strategy Really Works’, authors A.G. Lafley and Roger L. Martin question  these long-held beliefs:

These [value disciplines] sound like good ideas, but if they don’t translate  into a genuinely lower cost structure or higher prices from customers, they  aren’t really strategies worth having.

The authors have plenty of street cred to back up their point of view. Lafley  is Chairman and CEO of Procter & Gamble while Martin is Dean of Rotman  School of Management in Toronto.

‘How Strategy Really Works’ may be the best business and strategy book I’ve  read since Michael Porter. There is plenty of practical advice, including  the fact that business people often confuse a vision for a strategy. Instead,  the authors claim “winning through distinctive choices is the always-and-forever  job of every strategist.”

To make this point, Lafley and Martin explore the strategy of becoming the  low-cost leader in a market. They point out companies cannot be a cost leader by  producing products or services exactly as their competitors do (operational  efficiency is not enough). What’s more, becoming a low-cost leader doesn’t  necessarily mean the company should charge the lowest prices:

Low-cost leaders have the option of underpricing competitors, but can also  reinvest the margin differential in ways that create competitive  advantage.

For example, 30 years ago Mars created its  line of candy bars so they all could be produced on the same super-high-speed  production line. In addition, the company decided to use lower-cost ingredients  than its competitors. These decisions dramatically reduced their product cost  compared to its competitors with multiple production lines and more expensive  ingredients.

Instead of selling its candy bars at lower prices, Mars chose to buy the best  shelf space in every convenience store in America. Even though Hershey’s was a  much larger company than Mars, its higher product costs meant it couldn’t afford  to counter this strategy. As a result, Mars grew from a small player to  Hershey’s main rival with similar market share.

Now that was a successful strategy.

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This blog was originally posted on Manage By Walking Around on September 15, 2013