Posted: 11:00 a.m. Monday, March 11, 2013
By Eric Schurenberg
Roger Martin, dean of the Rotman School, describes the four keys to great strategic decision making.
To succeed as an entrepreneur, you know you have to be a bit of a visionary. You also, especially in your business's early days, need to be a bit of a sales person, programmer, PR expert, internal travel agent, speaker's bureau, and human resources department, to name just a few other chores.
Given all that, can you maybe leave the strategic thinking for later?
Well, no, says Roger Martin, the dean of the University of Toronto’s Rotman School of Business. Martin is out promoting a book on the topic that he wrote with the legendary former CEO of Procter & Gamble, A.G. Lafley, called Play to Win: How Strategy Really Works. He blogged on the difference between strategy and execution for Harvard Business Review and is about to start a multi-year research project on the future of democratic capitalism--an inquiry so strategic, it’s practically metaphysical.
In Martin’s conceit, strategy is not complicated, or impractical, or disconnected from reality. And it’s certainly not optional. It’s all about making five straightforward choices: What’s your company’s purpose? Where will you compete? How can you win? What capabilities will you need? And what management systems must be in place? That’s it.Strategy in action
As an example of strategy in action, Martin refers back to his pre-academic career as a consultant for The Monitor Group, working closely with consumer goods giant Procter & Gamble. Sales of P&G's market dominant detergents (including the killer brand Tide) had flattened, and Monitor was called in to help P&G figure out why.
Martin didn’t have any particular insight himself, but he did observe that P&G had not changed for decades how it dealt with its distribution. P&G saw its channels as divided into mass merchants, grocery stores, drugstores, convenience stores, and distributors that served mainly small storefronts. Without knowing the answer, Martin asked, "Is this really the best possible way to think of our channels?"Siding with the winners
Turns out, it wasn’t. A study that Martin commissioned learned that the old approach totally missed the rapidly growing importance of Wal-mart, Costco and other "everyday low prices" (or EDLP) retailers. It turned out the big boxes the fastest-growing (make that only growing) channel for P&G products. Not only that: because they stocked only a limited number of top-selling SKUs, they were particularly well suited for P&G’s monster brands like Tide.
Within months of Martin's study, P&G had reoriented its distribution strategy around two categories: EDLPs and "high-low" pricing outlets. ("High-low" referred to the practice of offering low prices at sales and high prices the rest of the time.) The company used co-marketing dollars it would otherwise have spent to support periodic sales--as it traditionally did at conventional "high-low" outlets--to give EDLPs the permanent low wholesale prices they sought.
Sales at last took off. "We were finally siding with the winners in the marketplace, rather than the losers," he says. "It took our competitors a couple years to catch on to what we were doing."
What lessons did Martin take away from that success? He cites four things:
Never assume that the conventional wisdom is right. Old ways of operation can be sticky. After all, they have their own built-in constituencies. In P&G's case, there were whole departments dedicated to planning sales promotions with "high-low" channels. They were threatened by a model that would render them at least partly obsolete.
Be willing to explore things that could turn into a dead end. Until the study was complete, neither Martin nor P&G knew how much the EDLP stores were gaining on their conventional partners. "If you think you have it all figured out before you start your analysis," says Martin, "you’re not going to solve any mysteries."
Project confidence. In the P&G example, no one knew where the research would take them, which meant that Martin had to reassure them that it was worthwhile. "My case team was a little weirded out," he recalls, "because I told them I’m not sure what we’d find. I never had doubts that it was essential for us to understand our distribution chain better. But I had to supply all the confidence."
Don’t fall into "execution trap". This is a particular crusade of Martin's. "Strategy is about making choices: We’re going to do this, and not that. How many strategies can you think of that allow people below the top level of the company to turn off their brain and simply 'execute' a strategy by rote? It doesn’t happen that way," he says.
Instead, every member of your team makes choices in his or her daily job to implement the strategy. "Strategy sets off a cascade of choices from the top to the bottom," he says.
But the process of making those choices all the way down the chain of command is not a separate thing called execution. He adds, "We have a crisis in business because companies focus on 'execution' separately from strategy. And the more we focus on execution, the worse the crisis is going to get."
Strategy. It’s not just a good thing to have. It’s the one thing a winning company can't do without.