The strategy choice cascade. Where to play and how to win.

Revision as of 12:24, 18 March 2022

Category:The strategy choice cascade. Where to play and how to win.

Abstract

The Strategy Choice Cascade is a methodology that analyzes the critical elements of the strategic alternative of interests. Moreover, it is a way for a team to visualize and discuss different approaches towards future projects. A strong strategy will generate a durable advantage and higher value in the competitive market. This article serves as a guide for articulating a strategy or strategic possibility as an integrated collection of choices that uniquely places a company, project or product in its industry.

The strategy choice cascade

The value of framing your strategy

Strategy is an integrated collection of choices that generate a durable advantage and differentiate a project or company from the market competitors. Every facet of a business is affected by strategy, from employees to partnerships, services to sales channels, consumers to competitors. Moreover, in project management, a well-defined strategy framework leads to designing milestones that align with the company's goals. Several strategy approaches and frameworks exist to assist managers in dealing with this level of complexity. A strategic framework is a tool that assists managers in portraying how a project meets corporate and customer goals in a systematic and organised way. Implementing a strategic framework in a project has a number of advantages. A strategy framework will set the pillars to future projects, managers will identify the market of interest, the differentiation plan as well as the management systems required. On the deliverables, managers will have the foundations of a project communication plan which will enable effective communication with employees, customers, and other stakeholders. The framework also requires thinking about project interconnections, which will help decide which initiatives are worthwhile today and which can be of more interest at a later time.The Strategy Choice Cascade was designed at Procter & Gamble and is discussed in A. G. Lafley and Roger L. Martin's book 'Play to Win: How Strategy Really Works'. ^[1]

This cascade is comprised of five key elements:

1. The winning aspiration. This phase is all about establishing what the project aims to achieve and what would make it successful. 
2. Where to play. The playing field on which the project will compete.
3. How to win. How to come out on top. Winning implies outperforming competitors in terms of the customer value equation. There are two approaches to achieve a competitive edge, becoming either a differentiator or a cost leader.
4. Capabilities. The set of activities that a management must complete in order to gain a competitive edge.
5. Management Systems. Metrics and Systems that facilitate the capabilities and choices that constitute the strategy.

Figure 1 showing the 5 pillars of the strategy choice cascade.

Winning aspiration

The first item in the strategic decision-making process cascade regards the winning aspiration. In this step, management should define the strategic purpose of the company, including its driving goal and aspiration. It should convey what success would look like for a specific project and what it aims to achieve in terms of strategy. Defining a winning strategy serves as the basis for exploring the best alternatives and it sets the stage for all subsequent strategic decisions. An enterprise's guiding purpose is its aspirations. Consider Spotify's mission statement:" unlock the potential of human creativity—by giving a million creative artists the opportunity to live off their art and billions of fans the opportunity to enjoy and be inspired by it. "^[2] This statement is an affirmation of what it aspires to be and a reminder of the reason it exists. Or Nordstom which vows "to give customers the most compelling shopping experience possible". ^[3] A company's mission statement can be conveyed in a variety of forms. However, it is recommended to be focussed on customers.  The objective of an organization, according to Peter Drucker, is to generate a client, and this is still valid today. Looking at the  mission statements previously discussed, both of them base their goals on the needs of their consumers. The  tone of those goals is also interesting to look at: Spotify aims to serve all artists and fans, not just a select few, while Nordstom wants to serve all shoppers. A corporation should strive to win with its clients, not merely provide for their needs. And according to the authors of Playing to Win, the most important aspect of a company's ambition is that it should compete to win.

Where to play

The company's operating sector is defined by its decision of where to play. The focus should be to identify  what type of market the project should target. It may be the same market the company has always known or maybe they are looking to explore a new segment. Its is a matter of deciding where it is recommended to compete and where to avoid competing in order to gain the best competitive advantage. Recognizing this decision is critical since the playing field selected for the project will also be the area where you must find strategies to win. Choices on where to play can be found in a variety of contexts. 

1. Geography. When analyzing this aspect, the management identifies in which parts of the world the project will compete in.
2. Customer: Analyse the customers targeted by the project from the perspective of demographic, psychographic, behavioral and geographic segmentation.
3. Channel. This study looks at the routes that a product follows from business to the client. They can be direct or indirect sales channels, depending on whether the business performs the transaction directly with the client or through intermediaries.
4. Offerings. Identifying the specific services offered to serve the consumer and win in this market.
5. Stakeholders of project stage. What stages will be completed by the business and with by external contractors.

How to Win

Winning for a project means providing a better customer value equation than competitors. Porter's core argument in his book "Competitive Strategy" ^[4] is that organizations may gain and maintain a competitive edge in the marketplace by pursuing one of two strategies:

1. Cost leadership. Cost leadership refers to the company's objective of being the lowest-cost producer in its market. Cost advantages can come from a variety of places, depending on the industry's structure. A low-cost business must identify and use any cost advantages available. If a company can attain and maintain total cost leadership, it will outperform the industry average.

Walmart is the clearest illustration of a cost differentiator, providing  a 2% contribution to the US economy.^[5] As a result, it can sustain the lowest pricing and attract clients who make purchasing decisions based on affordability. The concept of low pricing is centred around having a big scale and lowering operational expenses. 

1. Differentiation. In a differentiation strategy, a company aims to be exceptional by focusing on a few key aspects that customers value. It chooses one or more traits that many buyers in a given industry consider vital and positions itself to address those demands. It often regards a mix between superior and unique benefits. A superior benefit is when a company provides a specific service better than competitors, whereas a unique benefit is when the company provides a service that other companies do not.

Emirates is a great illustration of how you don't have to follow the same approach as your rivals to win in the market. In contrast to other airlines that pursue a cost-cutting strategy, such as Ryanair, Emirates chose to be a differentiator rather than a cost leader. They accomplish this through providing high-quality service and amenities to their customers, as well as taking good care of them during their journey.

1. Focus. The goal of a focus strategy, also known as market segmentation, is to limit a company's competitive scope within an industry. Following this approach, a company chooses one or more industry sectors and personalises its strategy to serve them at the detriment of others. There are two versions of the focus approach: cost focus and differentiation focus. A company in cost focus pursues a cost leadership in its target market, whereas in differentiation focus it pursues differentiation in its target market.

TOMS, for example, is a shoe brand that employs the "Focus Strategy" by, focusing on a very specific market of consumers that value ethics within a company. TOMS' "One for One" concept asserts that for every item purchased, the company donates a third of its proceeds to grassroots causes, such as financial donations and collaborations with community groups, in order to create long-term change. ^[6]

Capabilities

A capability is a set of practices, tools, and systems, as well as organizational skills  that enables an organization to achieve a certain goal. These are the competencies a company must have to improve their competitive edge. Without the correct set of capabilities, implementing the winning strategy is impossible. At  this point in the strategy framework, management should describe the collection of activities that will be decisive for their project's success.

Apple's objective, for example, is to provide the greatest possible user experience to its consumers through innovative hardware, software, and services. Apple has been successful in achieving its goal because it possesses the following three critical capabilities, among others:

1. Design and functionality: Apple lays a high emphasis on product design, deviating from the norm to offer more appealing and streamlined products.
2. User experience; Apple's focus is simplicity and effective design, as they aim to make their products as simple as possible to use.
3. Performant Ecosystem: Apple has a vertical integration which led to product ecosystem where there is a clear interconnection between Apple's different products. When a user is wearing a mask, for example, the Apple Watch may be used to unlock an iPhone.

These three features may be thought of as the foundation of Apple's company-wide activity system. The activity system documents the key competencies needed to win, as well as the linkages that exist between them and the activities that support them.

The three capabilities are represented as the nodes in the figure below, and the connections between the capabilities indicate crucial strengthening interactions. Each capability becomes stronger as a result of these mutually reinforcing linkages, which is an important element of the activity system. The user experience capability, for example, may be greatly enhanced by exceptional design functionality; a seamless design will improve the user's experience.

The actions that support the core capabilities are represented by the subordinate nodes. For example, a performant ecosystem is supported by seamless integration within apps, a performant cross-platform experience, and good integration with third-party ecosystems.

Figure 2 showing an example of Apple's capability and activity system.

Management Systems

Infrastructure, systems, procedures, and metrics that support and measure your strategy across time make up management systems. It's doubtful that an organisation will be able to develop and sustain their capabilities without particular management systems in place to aid the process. These management systems are required to complete the strategic framework and guarantee that appropriate action is taken throughout the company. IT systems, organizational structures, and key measurements are examples of management systems.

Within a strategy, setting measurement systems incorporates two key elements: focus and feedback.

1. Focus. Knowing that the process of applying the strategy will be reviewed against some metrics, motivates the company to perform at its best.

1. Feedback. Comparing both predicted and real results encourages follow-up adjustments in the strategy.

Expected outcomes should be stated with as much precision as possible. Instead of expressing the strategy's desired goal as  raising the market share, it's preferable to define a range. If the market share falls within that range the company has succeeded, if it falls below it failed. Avoiding specificity in expected outcomes , allows the board to  to justify any result as rather expected. Every business unit or function inside an enterprise should have distinct measurements that relate to the organizational context and the unit's own decisions. To keep the company from relying just on a single metric of success, the metrics should cover financial, customer, and internal aspects.

The figure below depicts an example of a simple exercise that the enterprise's board of directors could carry out. The first step is to identify some specific strategic outcome goals, such as increasing customer satisfaction by a certain amount. After establishing a goal, the team should explore metrics to assess the progress toward that goal, such as Net Promoter Score and User Retainment.

Figure 3 showing an example of goals and respective management systems.

Example

Limitations

One significant limitation is that this strategy framework excludes competing reactions from determining the company's focus. Predicting competitive responses from other companies are critical in deciding if a company's strategy can survive in the market. If the strategy is for a smaller company, for example, the margin of error is limited due to resource constraints and the reality that larger companies with significantly higher finances may quickly undertake serious moves on the smaller company's market niches.

As a result, when a firm reconsiders its strategy, it may need to assess whether the competition would react at all, and if so, which choices will the competitor explore and most likely adopt. The strategy entails condensing all potential investigations of a competitor's reaction to a certain strategic move as an answer to those questions. ^[7]

An example of a competitive reaction involves Snapchat's new trending feature and Instagram's reaction to it. Because of the famous Snapchat Stories feature, social media users were gravitating towards Snapchat. The feature made it simple to publish content and allowed users to shoot more natural or realistic photos, as well as alter them with filters and effects. Most of all, stories would vanish after a set amount of time. Instagram saw this new product's success and their response was to copy Snapchat's offer. Instagram's team created a clone of Snapchat Stories, even name it the same. As a result, Instagram Stories gained 250 million users in its first year, while Snapchat's stock value plummeted.

The authors of Playing to win saw this limitation and suggest it should be taken into account in parallel with deciding on the strategies. They recommend to consider reiterating ones strategic possibilities as they delve deeper into the company's current context, challenges, and opportunities. It is considerably preferable to question as to what your rivals are going to do before proceeding than waiting patiently to see what transpires. Only tactics that deliver a large head start on generating future competitive advantages are worth the investment.

The strategy framework aims to highlight all five questions that must be answered and implemented in order to create a strong strategy and long-term competitive edge. However, the framework does not address where to begin or how to produce and decide between strategic possibilities. The first move is to learn about the industry that the company is in, its various segments, and their relative appeal. Porter's framework is a powerful resource for figuring out how profitable markets and sectors are. The second step is to figure out what consumers and end channels really want and how the company's present or future offers may help them get it. Following consumers, the company should investigate what capabilities and costs they have in comparison to the competitors. Finally, as previously said, it is critical to examine how the company's new ideas will be received by the competitors.

References

1. ↑ A. G. Lafley, Roger L. Martin (2013) "Play to Win: How Strategy Really Works"
2. ↑ About Spotify
3. ↑ Nordstrom Is the First Retailer That Actually Understands What We Want
4. ↑ Porter, M. E. (1980). Competitive strategy: Techniques for analyzing industries and competitors. New York: Free Press.
5. ↑ Pricing Strategy of Walmart
6. ↑ TOMS Impact report 2021
7. ↑ Predicting Your Competitor's Reaction. Harvard Business Review, 1 Aug. 2014