P&G's Ex-CEO Used A 5-Step Formula To Make Billion Dollar Decisions

Business Insider

The premise of legendary P&G CEO A.G. Lafley's new book is that strategy is actually pretty simple.

It should be made by answering 5 essential questions, according to "Playing To Win," which Lafley co-wrote with Rotman School of Management Dean Roger Martin .

Answering those questions requires deep knowledge of your business and market, and you have to make sure they're integrated, but the framework is extremely easy. 

People just avoid strategy because they hate making real choices. Hence the proliferation of advice that doesn't actually lead to anything concrete. 

"When I went on Google at 4:30 in the morning, there were 772 million business strategy references in their search engine," Lafley told Business Insider. " What Roger and I tried to do was to distill a simple but powerful approach to strategy that the two of us have seen work in 75 years of experience  ... We tried to demystify this whole thing called business, distill it down to five choices for winning."

Here are Lafley and Martin's 5 essential questions every business has to be able to answer:

What is winning?

If you aren't trying to win, if you're just trying to participate, you are wasting the time of your people and the money of your investors. A company has to define its purpose strategically, decide what specific victories would lead to its ideal future. 

Where am I going to play to win?

You can't win the whole world or please everybody. Trying to be all things to all people is a recipe for failure. You have to strategically narrow the field to the geographies, demographics, and channels where your company is most competitive, and can get the best possible results. 

How am I going to win where I play?

This choice is intimately connected with the former. It's deciding how to create unique value, and how the company can deliver it over a long period to create a superior return. 

What are my core competencies that are going to enable me to win?

In order to make the above decisions work, they have to be based on and supported by the things that a company's best at. For P&G, it was innovating quickly and understanding consumers. 

What management systems and measures are going to help me execute?

Strategies have to be measured and executed by people. Companies have to decide who they need, how to enable them, and how they can tell whether the strategy's succeeding. 

This framework helped Lafley make the extraordinarily difficult choice to completely change his company.

"One of the toughest choices we had to make was to abandon and eventually divest all of our food and beverage businesses, Lafley said. "We divested 7 or 8 billion dollars worth of leading food and beverage brands, the Folgers coffee brand, number one in America and Canada, the Pringles chips brand number 2 to Frito-Lay, the Jif peanut butter brand, the Crisco shortening and oils brand, number one."

They did it because though they were profitable businesses, they weren't ones Lafley saw as winners in the long term, or where the business could continue to grow and win.  

We chose for good strategic reasons to abandon and get out of those businesses so we could invest our resources, primarily our people but also our cash, in businesses like home care, personal care, beauty care and health care, all of which looked strategically more attractive." 

All of the above questions played a role in the decision to divest; these were areas in which P&G could win, Lafley said. "They were demographically more attractive, they were structurally more attractive, lower capital, higher margin, and frankly they were better fit with our core competencies, deep understanding of consumers, the creation of known  brands, and innovation, they were just a better fit with where we wanted to go and where we were going."

It's a simple 5-step framework that's robust enough to make an $8 billion dollar decision. 

Find the full book here.



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