The 5 most important questions to ask in business

This isn’t a post celebrating Portugal’s win over France, but its a reminder that in every endeavour you need to know how you are going to win.

In preparing a new course for SMU the reason I feel I’ll be able to add value to attendees is a focus on getting to the right questions rather than the right answers.

My theory is that typically the answers will change quickly with changing environments, with changing competition, with innovation, with the passage of time.  So if your focus is purely on answers you will always be catching up.

Better, I believe, is to understand what are the critical questions, and how can you find the most appropriate answers now.

So, I’ve been asked by SMU to answer “what are the 5 most critical questions” a successful business leader in Asia needs to ask.

I’m going to give two answers.

But here’s the first.  As part of the teaching team in SMU Executive Education, we are encouraged to review the work of both academics and protagonists… amongst these to study the best business leaders.  One of my favourites is A.G. Lafley, ex-CEO of Proctor and Gamble, a very data orientated decision focused consumer goods conglomerate that has had consistent success across the world.

A.G. Lafley and Roger Martin, previously Dean at the Rotman School of Management, developed the Five-Step Strategy Model and published it in their 2013 book, “Playing to Win.” This book highlights a 5 step simple strategy process that I use as the basis for my strategy thinking.

I used to get hung up with models and diagrams and mapping processes, but the simplicity of this approach, suggested by Lafley and martin, is that it asks 5 simple questions…. and these are the 5 simple questions I have chosen to build todays post around.

According to Lafley and Martin, 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.”

The authors developed a framework that you can use to select the right strategic approach for your organization. They can then review and propose the right answers that support this strategy.

To develop a winning strategy, you need to answer the following five questions in this order:

Lafley-Martin-Diagram

  1. What is our winning aspiration?
  2. Where will we play?
  3. How will we win?
  4. What capabilities must we have in place to win?
  5. What management systems are required to support our choices?

Strategy is choosing please don’t forget this, you have too choose the path and the means of progress to be successful, and choosing means as much selecting one path as well as sacrificing all others.  Strategy determination and the 5 Questions is about organising in a logical way the questions you must ask about what you should do and what you should not do.

Let’s look at the 5-steps in detail and analyse how these steps can be integrated into your planning. The answers to these questions are fundamental choices that every leader should make for a successful business strategy.

1. What should be the winning aspiration?

Companies have ambitions that are framed maybe as visions and missions. This kind of corporate ideas often lack context. Moreover, they tend to paint a happy picture of a perfect future and avoid messy things like the business environment, competitors and customers. In order to be sustainable, an organization must seek to win in a particular place and in a particular way, translating the abstract happy future into defined winning aspirations.

If you are not trying to win, you are just participating and wasting the time of your customers and money of your investors. Companies should define purpose strategically and decide what winning strategies lead to a rewarding future. Winning aspirations vary from one industry to the other.

Every organization can conceptualize what it means to win for them, even departments or divisions can create their own view of winning. Take for example a support department. Winning could mean being the service provider of choice for its internal customers (as opposed to the mandated and much-maligned choice.) It might mean becoming a trusted advisor to organizational leaders, or owning and utilizing the most sophisticated and successful suite of insight tools in the industry. But it should be more than simply ‘to serve the needs of internal customers’. That is a recipe for mediocrity.

2. Where you are going to play?

This next question determines where the organization will com- pete—in which markets, with which customers, in which channels, in which product categories, and at which vertical stages of its industry. In short, where to play represents the set of choices that narrow the competitive field.

The challenge on the where-to-play is to define which choices would give you a sustainable competitive advantage. As a big or small company, there is a very real temptation was to attempt to be in all places you can be at once, to be ‘everything to everyone’. But such an approach produces performance that regresses to the mean — an averaging out in which everything is a priority, so nothing is a priority. It would mean investment so diffuse into so many territories, customers and products that there would be no capacity to build on the areas where you could sustainably dominate and win.

Now you have to make another choice; to determine where your capabilities would enable you to succeed and where they would not — in other words, to understand what was truly core to your business — and to invest disproportionately in those few areas. As an organisation what are your current and future core strengths: what core brands or processes (a set of clear industry or category leaders), your core geographies (the few countries (or cities) that represent the bulk of your opportunity), your core customers and channels (the places consumers expected and wanted your products to be), your core technologies and innovations (moving from just inventing new things to a mindset of  innovation supporting your strategy), and your core consumers (those who matter most to your organization, in the most attractive customer segments.)

This core will become the most fundamental where-to-play choice for you—and as a result, you may chose to divest or de-emphasize those businesses or products or territories or customers that did not fit within your core.

3. How you are going to win?

Where to play and how to win are intimately tied, and together they form the very heart of strategy. While where to play is about determining the playing field, how to win is about defining the method by which you will win on that eld. Importantly, how to win must be considered within the context of the where-to-play choice: it is not how to win generally, but how to win given a specific where-to-play choice.

To determine how to win, an organization must figure out what will enable it to create unique value, and how it can sustainably deliver that value to customers in a way that is distinct from its completion. This is what constitutes competitive advantage: the specific way in which you leverage your advantages to create superior value for a customer and superior returns for you. Choosing how to win is about finding and building on sources of competitive advantage.

To be successful, how-to-win choices must be appropriate to the specific organizational context and must be very dificult for competitors to copy.

There is no checklist from which to select the best way for you to win. Selecting entails matching a your advantages (both exist- ing and potential) against your where-to-play choices.

But determining how to win does begin with a single, crucial  strategic choice: will the organization win on the basis of having lower costs than the other players in the industry (like Amazon does in retail), or on the basis of brand differentiation/ Distinctiveness  (like Apple does)?  In a low-cost strategy, as the name suggests, profit is driven by having a sustainably lower cost structure than competitors. In a differentiation or distinctiveness strategy, on the other hand, profit is driven by a price premium, derived because the company’s products or services are perceived to be distinctively more valuable to customers than competitive offerings. Both cost leadership and differentiation can produce a sustainable winning advantage.

Porter strategy diagram

Cost leaders and differentiators behave very differently on the basis of very different ways to win. With cost leaders, managers work to understand cost drivers, remove costs from the system, standardize and rationalize a single minded focus on stripping unnecessary cost out. At a differentiator, managers work to deepen their understanding of customers, build the brand with them in mind, delight current customers and create new ones, a single minded focus on delighting customers and covering their costs with higher prices. Both work in single minded ways towards a specific kind of competitive advantage, a particular way to win.

4. What capabilities you should build?

Organizations do many things, but there is a subset of activities that truly matter, that make the difference between winning and losing. These are an organization’s core capabilities — the map of activities that, when performed at the highest level, enable the organization to bring its where-to-play and how-to-win choices to life.

Determining core capabilities is not about asking what you are really, really good at now. It is about asking what the organization would need to be distinctively good at in order to play where it wants to play and win how it wants to win. These capabilities may map well to your current activities, or they may represent capabilities you need to build new in order to deliver on the chosen strategy.

From Lafley’s plan for P&G, here are their five core capabilities as an example

  1. DEEP CONSUMER UNDERSTANDING: This is the ability to truly know consumers better than any competitors do, to uncover unarticulated needs, and to see opportunities before they are obvious to others.
  2. INNOVATION: This is the capacity to translate deep un- derstanding of consumer needs into brands, products and services, relationships, distribution models, busi- nesses and systems.
  3. BRAND BUILDING: This is about building and deploying a distinctive heuristic for creating strong consumer trial and lasting consumer loyalty. P&G trains and develops brand leaders and marketers in this discipline e ectively and e ciently.

4. GO-TO-MARKET ABILITY: This capability concerns channel and consumer relationships. P&G thrives on reaching its customers (i.e. retailers) and consumers (i.e. the families who buy and use P&G products) at the right time, in the right place, in the right way. It invests in building partnerships with retailers to consistently deliver more value to P&G, to retailers and to consumers in the store.

5. GLOBAL SCALE: This capability relates to the power of hiring together, learning together, buying together, researching and testing together, and going to market together across multiple categories around the world, to capture the global benefits of scale.

Taken together, these five capabilities set P&G apart. Each in isolation is important, but not suffcient to generate true competitive advantage over competitors for the long term. Instead, it is the positive way all of the capabilities fit with the others that generates enduring advantage.

5. What management systems are needed?

The last of the five essential questions is about management systems — the systems that build, support and measure a strategy. This last question is typically the most neglected, but is no less crucial to effective strategy than the others. Even if the other four questions are well answered, a strategy will fail if management systems that support the choices and capabilities are not established as well.

Without supporting structures, systems, and measures, the strategy will simply be a ‘wish list’ — a set of goals that may or may not ever amount to anything. To truly win, an organization needs systems in place to support and measure the strategy. It needs a robust process for creating, reviewing, and communicating about strategy; it needs structures to support its core capabilities; and it needs specific measures to determine whether the strategy is working (or not.)

Here’s five questions in more detail

Laffley Strategy Cascade

Making your way through the choice cascade isn’t a one- way, linear process. You don’t simply create and articulate aspirations, then move on to where-to-play and how-to-win choices, then consider capabilities and systems. Rather, strategy is an iterative process in which all of the moving parts influence one another and should be taken into account together.