A Strategy Classic

This “playbook for winning” by A.G. Lafley, legendary former CEO of Procter & Gamble (now P&G), and Roger L. Martin, former dean of the Rotman School of Management, explains that strategy demands making tough choices in the business world’s stressful, volatile environment. Their tone is businesslike and direct. They don’t waste time complimenting themselves, and it’s hard to argue with their experience.

When Lafley joined P&G in 1977, he discovered decision-making drift that led to unsuccessful choices. In 1986, after P&G’s “first major restructuring and write-off,” it called in strategic help, including guru Michael Porter. Lafley welcomed the famous consultant, but the results didn’t change P&G’s culture. The firm reverted to haphazard acquisitions and flawed products. By 2000, when Lafley first became CEO, P&G was in trouble. He believed only rigorous, superior strategy could help.

Working with co-author Roger L. Martin, Lafley built a strong strategic process and brought P&G back to profit and growth. During his 2000 to 2009 tenure as CEO, sales and profits grew, with share prices up 80% even when the S&P 500 fell. Since then, strategy has become and remains P&G’s secret sauce.

We worked to develop a robust framework around our strategic approach, a way to teach the concepts to others and a methodology for bringing it to life in an organization.A.G. Lafley and Roger L. Martin

Lafley and Martin give readers an inside track as they explain how P&G reorganized its internal processes, outsourced functions to “best-of-breed” suppliers and built mutual dependencies.

Ask five questions

Companies that try to win everywhere and with all customers set themselves up to fail. Instead, Lafley and Martin say, discover your strengths in-house and in customer segments. Make the hard choices that enable high-impact wins.

A strategy is a coordinated and integrated set of five choices: a winning aspiration, where to play, how to win, core capabilities and management systems.A.G. Lafley and Roger L. Martin

Lafley advises asking and answering five essential questions. First, ask “what is our winning aspiration?” Conceptualize an idealized end game for your firm and its offerings. Second, ask “where will we play.” Identify target markets, distribution channels, and industry, product and service categories. Determine where to compete. Third, ask “how will we win?” Plan how you can develop unique value and distinctively deliver it to consumers. Fourth, ask “what capabilities must be in place?” Check which of your core competencies are ready and which you must improve. And fifth, ask “what management systems are required?” Develop processes that enable, use and evaluate your strategy.

Practice your strategy

To support their five strategic questions, the authors offer telling case studies, often covering P&G product lines, such as Olay.

In the late 1990s, skin care was 25% of beauty sales. But P&G’s lone entry, Oil of Olay, was a passé, $3.99 pink cream mockingly known as “Oil of Old Lady.”  Though it still earned $800 million a year, that was a fraction of the $50 billion annual US skin care sector. P&G strategically reviewed its options. It could refocus from Oil of Olay to a hipper, more prestigious brand, but that could take years to develop. It could spend big bucks to buy a respected brand. It could extend one of its own successful beauty products – say, Cover Girl – into skin care, but no one could predict the outcome of that ploy. Or, it could restructure Oil of Olay to compete.

As Lafley and Martin admit, restructuring offered few guarantees. Those leading the effort would be wholly on the hook for its success or failure. Olay’s widespread product recognition was the lone strategic factor that favored restructuring its marketing.

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.A.G. Lafley and Roger L. Martin

Then, P&G research discovered another positive factor: the emergence of a new skin care market of women in their mid-30s worrying about wrinkles for the first time. P&G knew that when women this age become fond of a product, they generally become loyal, life-long customers. Lafley, Martin and P&G’s other leaders believed Oil of Olay could do well if they enhanced it and restructured their approach. To revitalize the cream, P&G shortened the name to “Olay” and changed the merchandise, the model and the marketing. It reinvented Olay to build brand loyalty among its target audience and developed additional lines for “prestige” retailers.

Use your prestige.

The authors teach that a prestige product can win both mass market and high-end buyers. A technique Lafley and Martin call “masstige” – a mash-up of mass market and prestige – calls for giving mass-market buyers a prestige brand that fits their needs. With masstige, marketers help high-end customers identify a high-quality, luxury item, and they show mass-market buyers that they can affordably step up to luxury. P&G launched a new masstige category: new $18.99 Olay Total Effects.

The new, more effective products could credibly be sold in department stores like Macy’s and Saks, the prestige channel that accounted for more than half the market.A.G. Lafley and Roger L. Martin

Alas, the authors failed to capture (or perhaps decided not to share) the insider details of the apparently heated internal price debate about the launch of this masstige leader. These arguments are not incidental, because price turned out to be the cornerstone of P&G’s strategy. Some voices at P&G found $12.99 too cheap and $18.99 too costly. But $15.99 was a “no man’s land” – too expensive for a mass shopper and not prestigious enough for high-end. In the end, $18.99 was just right. The mid-market reached up and the high market reached down. P&G’s eventually expanded its masstige marketing to include luxurious, high-end $50 Olay Pro-X.

P&G skin care sales jumped from 2% to 4% annual growth in the 1990s to “double-digit sales and profit growth” from the 2000 re-launch throughout the next decade. The company turned Olay into a $2.5 billion brand with high margins and targeted consumers “squarely in the heart” of desirable market segments.

Measure your success

In Lafley and Martin’s analysis, the five vital strategy questions played out remarkably to reflect Olay’s wins. First, its aspirations produced North American market leadership, strong global sales and a big masstige win. Second, the masstige playing field worked, drawing women in their 30s and 40s. Third, P&G won by creating products that worked to make facial skin look younger, a memorable ad campaign and the masstige channel. Fourth, P&G’s core competencies delivered “packaging, distribution, marketing and…business model innovation.” And fifth, P&G’s relevant management systems included the global buying, service and organization Olay’s success required. 

Ultimately, this is a story about choices, including the choice to create a discipline of strategic thinking and strategic practice.A.G. Lafley and Roger L. Martin

P&G went further, the authors explain. It found value in an existing product and tied new products to it. Management supported the effort by building employees’ sense of connection to Olay and monitoring customers’ reactions to the brand, packaging and marketing.  

“Strategy logic flow.”

The authors provide a model – strategy logic flow – you can use to evaluate the thinking behind your strategy with the rigor and precision that Lafley and Martin exemplify. Examine and consider your industry, client priorities and competitive position. Ask how rivals will react to your moves. Unlike many strategy authors, Lafley and Martin provide a blueprint that seems real-world workable, practical and applicable. Businesses far smaller than P&G can benefit from applying these lessons. 

The strategy logic flow…a framework designed to helpfully direct your thinking to the key analyses that inform your five strategy choices.A.G. Lafley and Roger L. Martin

To put their wisdom to work, the authors say, reverse-engineer your strategic options. “Frame” your strategic choices to identify feasible options. “Generate strategic possibilities” to add alternatives. Define the conditions for each feasible choice. Analyze blockades. Set up authoritative testing, test each option and decide. This calls for thorough research, planning and analysis. When you finish reverse engineering, resist any temptation to dust off your hands and sit back. As the authors note sternly and throughout, strategy is a process, not a result. Be ready to change as conditions evolve.