PDF Summary:Playing to Win, by AG Lafley

In Playing to Win, former CEO A.G. Lafley and consultant Roger Martin explain the steps for developing a successful business strategy. When the two worked together at Procter & Gamble, they used this approach to double the company's sales and market capitalization.

Their strategy involves answering five questions, each leading to the next like a cascading waterfall:

1. What is your company’s ideal future?
2. What are your target markets?
3. How will you succeed in those markets?
4. What capabilities does your company need in order to “win”?
5. How should you manage your company in order to “win”?

In this guide, we’ll examine each step of Lafley and Martin’s waterfall strategy, then discuss how to create a business plan that will help you dominate your chosen market. We’ll further enrich—and occasionally contrast—Lafley and Martin’s ideas with connections to other popular business guides such as Richard Rumelt’s Good Strategy/Bad Strategy and Simon Sinek’s The Infinite Game.

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• Personality: People are attracted to brands when the advertising and presentation match their personality or how they see themselves. For example, Red Bull and Monster are two popular brands of energy drink—Red Bull advertises with silly, cartoonish commercials, while Monster presents itself as intense, athletic, and powerful. By using two different approaches, these brands capture different segments of the energy drink market.

Question 4: What Capabilities Do You Need to Succeed?

Once you’ve decided where you’re going to play and how you’re going to win, Lafley and Martin say the next step is figuring out what capabilities you need to achieve your victory, such as innovation or efficiency. To do so, determine what your company needs to be good at—and what it needs to be the best at—to win in the playing field you’ve chosen.

Note that you don’t need to outshine your competitors in every capability. For example, it’s important to be good at manufacturing, but your company doesn’t need to be the best at manufacturing to be successful (unless manufacturing is your winning strategy).

(Shortform note: While Lafley and Martin advise you to study your direct competitors, some business consultants suggest a broader view: Learn from the very best, no matter what markets they compete in. For example, if you’re trying to build up your company’s capacity for creativity, you could study companies like Google, Amazon, and Netflix—world leaders in innovation.)

Question 5: How Should You Manage Your Company?

It’s tempting to believe that if you complete the previous steps—determine your aspirations, a place to play, a way to win, and the capabilities to fulfill all of those goals—then your company will succeed. But Lafley and Martin warn that, while those steps are important, a successful company still needs three specific management capabilities to make sure the rest of the waterfall flows smoothly:

1. Systems to review strategy
2. Systems to communicate strategy throughout the organization
3. A system to measure progress toward your goals

(Shortform note: With the coronavirus pandemic, and the resulting increase in teleworking, these management capabilities are more important than ever. Managing a work-from-home or hybrid team presents unique challenges that companies must be prepared to meet. Specifically, fairness and communication are the keys to effectively managing such a team. A clear system for measuring progress and performance ensures fairness by holding everyone to the same standards, regardless of where they work from. Clear communication ensures that your at-home employees aren’t left out of the loop.)

Capability #1: Systems to Review Strategy

Lafley and Martin say that a healthy work environment—one with good communication and happy employees—is necessary for strategic success. To foster this collaboration and deftly respond to new challenges, managers and executives must discuss issues and review strategy in the open.

According to Lafley and Martin, the best way to do this is to have regular open discussions. Focus on simple strategic questions during these discussions, and don’t expect to come up with a perfect plan in one fell swoop—strategy is a continuous process of innovation, discovery, and review.

(Shortform note: Open discussions of this nature require trust: Each person in the discussion must trust the overall company strategy, and also trust his or her coworkers to be respectful and honest. According to Simon Sinek’s book Start With Why, trust isn’t a rational feeling and isn’t tied to actions; rather, it’s tied to values. Therefore, to make these open discussions productive, first build trust by demonstrating to your employees that you share their values and their concerns.)

Capability #2: Systems to Communicate Strategy

Lafley and Martin emphasize that company leaders must communicate the organizational strategy to everyone—from senior managers to low-level employees.

First, executives need to make the message compelling by distilling the few elements of the strategy that are key to enabling the company to achieve its goals. Second, leaders must communicate the strategy in clear, simple language, which helps employees remember and carry out the strategy.

(Shortform note: When a company strategy is unclear or doesn’t resonate with employees, they don’t do their part to execute it, rendering the strategy virtually useless.)

Capability #3: A System to Measure Progress

When you create a strategy, Lafley and Martin recommend you establish expected outcomes and a way to measure results against those outcomes. Measure your company’s performance and use that data to determine what’s working, what isn’t, and how you can improve your strategy.

Lafley and Martin warn that you should never use a single outcome to determine your success. Establish individual goals for each department so your company’s overarching strategies are well-rounded, and to ensure that one missed goal doesn’t derail your motivation or morale.

(Shortform note: When setting goals, make sure that they’re appropriate for each individual department or employee, not just a “company standard.” For example, an innovative new unit within your company shouldn’t be held to the same standards as a long-established and optimized core business unit; doing so just sets that new unit up for disappointment and failure.)

Navigating the Waterfall

Now that we’ve covered the five steps of Lafley and Martin’s waterfall strategy, we’ll delve into exactly how to make decisions at each step. There’s no surefire formula for victory, but there are frameworks that, if used correctly, can serve as jumping-off points and make success more likely.

(Shortform note: Lafley and Martin say that there’s no sure way to win in the marketplace because there are always unknown variables and uncertainty in any strategy. In Antifragile, statistician and risk analyst Nassim Nicholas Taleb explains how to make uncertainty work in your favor instead of against you. One of Taleb’s key points is to always leave yourself as many options as possible; every option you have available helps you maximize opportunities and minimize harm from any sudden changes.)

Decision-Making at Early Waterfall Steps

While you work through Lafley and Martin’s waterfall strategy, remember that no decision is final. Each step of the waterfall affects all the others (not just those below it), and every strategy can change based on changing market conditions. Therefore, you’ll most likely come back to the early steps and rethink the decisions you make.

Remove Ego From Your Decisions

When responding to changing circumstances, one unforeseen obstacle can be your own sense of pride. In Ego Is the Enemy, Ryan Holiday explains that pride (or ego) can prevent us from recognizing when we’ve made a bad decision and keep us from admitting that we need to change our approach.

He explains that someone with too much ego sees failure as a personal attack, rather than simply a part of life; they become defensive, blame others, and stop working to improve the situation. This kind of emotional reaction can turn a temporary setback into a permanent defeat.

Step 1: Lay the Groundwork for a Choice

Lafley and Martin say you should begin by identifying the problem you’re trying to solve and boiling your options down to a clear either/or choice—for example, if you need to reduce overhead, perhaps your options are to either fire employees or remove yourself from a geographic area where distribution is expensive.

Next, ask what information you would need to figure out which of those solutions is best. Note that you’re not making a decision yet; your final choice might not be either of the options you just came up with. Right now you’re figuring out what groundwork you’ll need to do before making a decision.

Consider Options Using the “Toggle” Technique

As an alternative, use the Toggle Technique to consider different options. Here’s how it works:

• Center yourself. Take a moment to close your eyes and breathe. You’re about to engage in a fairly strenuous mental exercise, so make sure you’re calm and prepared for it.

• “Pick” an option. Think about the first option on your list and imagine that you’ve already chosen it—imagine that you’re 100% committed and there’s no going back. Does it make you feel excited? Nervous? Sick to your stomach? Your emotional responses will be the key to making this decision.

• Toggle. Once you’ve examined your emotional response to the first option, switch to the next one on your list and imagine that you’re 100% committed to it. Again, check in with your feelings. Repeat this process for every option you’re considering.

• Choose. Once you’ve checked in with your “gut” on every option, pick the one that feels the best.

Step 2: Imagine Potential Strategies

Now that you have two viable options, think about every possible strategy for solving the problem, no matter how off-the-wall it seems. Lafley and Martin suggest that, during these sessions, you don’t put the ideas through any sort of vetting process—just let solutions fly and imagine the positive outcomes of each. Write down every new idea, no matter how unusual.

(Shortform note: In Purple Cow, Seth Godin suggests that you use these brainstorming sessions to intentionally come up with the most extreme, over-the-top options you can imagine. Godin reasons that to create an exceptional product, you should start by finding the outer limits of possibility. Then determine which of those extreme options will get you the results you want, and figure out how to implement it.)

Step 3: Determine the Conditions for Success

After you’ve written down all of your potential solutions from Step 2, move on to figuring out what market conditions would be necessary for one of these possibilities to succeed. This requires a sort of reverse engineering—start with the assumption that each potential solution is a good one and work backward to determine what conditions would make that so.

(Shortform note: In Purple Cow, Godin explains that digital cameras were able to compete with—and eventually dominate—the photography market because manufacturers identified and then created two conditions for success: Digital cameras had to be at least as easy to use as film cameras, and people needed to understand the advantages that digital cameras had—such as not needing to get film developed.)

Step 4: Find Potential Barriers

Lafley and Martin’s fourth step is the opposite of Step 3—Figure out every potential problem with each strategy. Encourage the members of the team who are most skeptical about each idea to explain their skepticism. Do this for each of your potential solutions.

(Shortform note: Sometimes, the most successful people are those who manage to turn problems into opportunities. For example, boxing great Muhammad Ali won the famous Rumble in the Jungle match against George Foreman with the rope-a-dope: leaning against the ropes to absorb the shock of his opponents’ strikes. Foreman exhausted himself throwing powerful yet ineffective punches, then Ali struck back for an easy knockout. In other words, Foreman’s strength was a barrier that Ali couldn’t overcome, so instead he used a clever strategy to turn that barrier into an advantage.)

Step 5: Create Tests

Next, Lafley and Martin suggest you design tests—approved by the group—that can gauge both the potential success conditions and the potential barriers to each strategy. These can be qualitative (like speaking to customers in a focus group) or quantitative (like conducting large-scale price-point tests). If your company can’t afford these sorts of tests, Lafley and Martin recommend using publicly available data instead.

(Shortform note: Formalized testing isn’t always feasible. Generally, formal testing is appropriate for implementing a strategy but not for creating a strategy. For example, you can test a new company logo in a focus group. However, if you’re facing a major strategic decision like a merger, there’s no way to run a meaningful test—you’ll have to make the best decision possible based on the information you already have.)

Step 6: Administer Tests

After you’ve designed your tests, conduct them. Lafley and Martin suggest prioritizing tests based on which ideas are more and less likely to be successful. First, test the ideas about which you feel the least confident. If these possibilities fail, eliminate them right away, and move on to testing ideas that you think have a better chance of success.

(Shortform note: You may be tempted to set tests that you believe your ideas will pass, to prove that they can pass the tests. However, it’s often more effective to do what philosopher Karl Popper calls negative verification: Design tests that you think the strategy will fail to find the flaws in it. Negative verification allows you to quickly and efficiently weed out the ideas that won’t work.)

Step 7: Make Your Choice

The final step of Lafley and Martin’s process is to choose a strategy. If you’ve done the first six steps correctly, you should feel confident that the data from your tests are pointing you in the right direction. Whatever potential solution tests best is the one you should choose.

Step 8: Stick to It—Unless…

Lafley and Martin’s decision-making process is designed to help you make the best decision possible and feel confident in it, but it doesn’t include guidance for what to do when you don’t make the best decision. To avoid executing a poor choice after making a decision, set specific red flags that would get you to reconsider that decision.

Setting specific guidelines like this will help in two ways:

• You won’t panic at the first sign of trouble and make an unnecessary course correction.

• You won’t wait too long to make a necessary course correction.

Setting these red flags will keep you on track—you’ll be able to make changes when needed, and only when needed.