Playing to Win: How Procter & Gamble Increased Its Market Cap By $100 Billion

In the following interview with Roger Martin, co-author of Playing to Win, he discusses his time as a consultant for Procter & Gamble (NYSE: PG  ) , and tells how he helped the company make a major turnaround, and gain $100 billion in market capitalization.

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Brendan Byrnes: Hey folks, I'm Brendan Byrnes and I'm joined today by Roger Martin, coauthor of Playing to Win, which you co-wrote with A.G. Lafley. First of all, thank you so much for your time.

Roger Martin: It's great to be here, Brendan.

Brendan: My first question is, a lot of the book follows how you helped turn around Procter & Gamble. Over 10 years you helped, as a consultant, increase their market cap by $100 billion. Could you talk a little bit about the strategies you used to do that?

Roger: Sure. It was mainly tightening up the Where to Play, How to Win choices that the company was making. During the '80s and '90s it had gotten into some businesses that didn't really fit with the strategy and some of the strategies of the various businesses just weren't precise enough.

Making sure that every category -- whether it be Baby Care, Hair Care, Skin Care -- had a very clear statement of what they were trying to accomplish, their winning aspiration, where they were going to play, and how they were going to win; that really made the difference. It was a much more careful, strategic company as of 2010 than it was in 2000.

Brendan: Can you talk about why you called the book Playing to Win, and how does one play to win?

Roger: Sure. We called it Playing to Win because what A.G. and I believe strongly is that if a company doesn't attempt to win -- by which we mean have a better value proposition for the customer than anybody they're competing with -- then one of those other companies will choose to do that and they will eventually eat your lunch.

Serving the customer better, having a better value proposition, is the aspiration that you need to have. If you do that, if you set that as your aspiration, then it will help you make choices that are consistent with that.

If you've got this general, fuzzy, "We want to sell stuff" kind of aspiration, then it won't help you make the choices that say, "What do we have to do to actually make that happen?"

Brendan: You have a framework of the five essential strategic choices. Could you outline those, and maybe a brief example about them?

Roger: Sure. The first one is Winning Aspiration. What is your winning aspiration? To give an example that we used in the book, Oil of Olay was the skin care brand of Procter & Gamble. It was a $750 million no-growth, not very high margin product.


We set, as the winning aspiration, we wanted to have one of the very leading skin care brands in the entire global category, that would anchor our Beauty Care business because it's the biggest and most important business in all of Beauty Care. That's a winning aspiration.

Second is Where to Play. Where in the overall marketplace are we going to plop ourselves down and play and compete? In this case, we were previously playing in the most dominant part of that category, which is women 50 and above, whose primary concern is wrinkles and hiding, reducing, their wrinkles.

We made a Where to Play shift, to focusing more on women 35 to 50 who are experiencing the first signs of aging. They weren't being targeted by others, but they were concerned about things like spots and drying skin and the like, not just wrinkles, and we targeted there. We shifted our Where to Play.

How to Win, there we said, "Well, we've got to have better active ingredients" that fight what we called "seven signs of aging," and we needed to have an experience of purchasing the product that felt more like the department store, what's called "prestige channel," in our traditional mass channels.

They go into a Target or a Wal-Mart or a Walgreens and they'd have an experience of a shelf that looked more luxurious, that was nicely, fully stocked with much, much better packaging than we previously had.

We felt that if we could do that, we could win with that set of customers. They'd say, "We don't have to go to the department store. We can shop in our normal channel and we see this product as a product that will take care of us."

The fourth question is "What are the capabilities necessary to win where you've chosen to play, so that you achieve the winning aspiration?" They all link together.


There, we had to build some brand new capabilities in R&D, because previously with Olay it was an old product that we didn't advance very much, so we had to up our R&D, do lots of connection with labs around the world outside Procter & Gamble to find the best active ingredients, then we had to build partnerships with our mass channel partners to create this in-store experience that we came to call "masstige," sort of halfway between "mass" and "prestige."

Finally, we had to build the management systems that would ensure -- that's the fifth question, "What are your management systems?" Those management systems need to ensure that you build the capabilities and maintain them on an ongoing basis so you win where you've chosen to play, and achieve your aspirations.

What we did was, we turned a brand that was a $750 million low, if any, growth brand into an almost $3 billion business that grew over 10% a year for a decade straight, relaunched -- our price was $3.99, we relaunched at $18.99 and there's now Olay products that sell in the mass channels for $50 -- so a completely transformed business, that was transformed on the basis of answering those five key questions.

Brendan: Wow. That's one example of things that leaders do right. How about taking a look at the other end of the spectrum? What's a common mistake that you think leaders make when looking at strategy?

Roger: I think a lot of leaders think of it as a plan. It's just a description of a bunch of things that you're going to do, and often that's just a compilation of what all your direct reports say they want to do, rather than saying, "We have to do some things that position us to win, and we don't do other things."

Another thing is just thinking strategy is an aspiration statement, a vision statement. "We're going to be the best in our industry. We're going to be fantastic."

That's nice, but unless you have a Where to Play, How to Win that makes that possible, makes that a reality ... it doesn't matter that you have high aspirations if you're not doing anything to make that come true. I'd say those are errors.

Another one is the Where question; the second question, the Where to Play. I find that often companies and executives almost treat it as it's ordained by the heavens that "We're playing here now, so that's where you play and everybody else in our industry plays there."

If we would have done that with Olay, we would have stayed with the 50+ segment. Instead, we chose this brand new Where that ended up being incredibly, incredibly fruitful for us.

I often describe it as, if you assume your Where to Play is a given, you're trying to make strategy with one hand tied behind your back. You should operate both hands in order to develop a winning strategy.

Brendan: Do you think developing the strategy, versus the execution, do you think either one is more important, or are those equal in your mind?

Roger: Yeah, that's a question lots of people ask me. First of all, I would say without a strategy it really doesn't matter what you execute. That having been said, I don't find the distinction between the two very helpful.

If you think about it, everybody has to make choices. If you say strategy is about making choices and execution is something else what, then, is it? I think it's better to say people at the very top of organizations ...

A.G. Lafley had to make choices for Procter & Gamble overall, then Susan Arnold who was then the head of the Beauty sector, has to make a set of choices for Beauty, and then Gina Drosos who was running Skin Care has to make Skin Care choices, and then people running Olay have to make Olay choices, and even people down below, who have to figure out how to sell Olay to the channel in Turkey, have to make choices.

What I'd say is that making intelligent choices that are guided by the notion of strategy is important from top to bottom and you will have what people think of as "great execution" if you're all making good strategy choices.

Brendan: When you're writing a book like this, is it a challenge to make it relevant and applicable to everyone from the top of the corporations to maybe a small business owner? How do you go about doing that?

Roger: That's what we tried to do, Brendan, in the book, and I hope we've succeeded, which is to say, "Regardless of what kind of business you're in, this is a set of choices -- five of them -- that comprise the strategy. Here's what they look like."

I think they're as applicable in a small business as a big business. I think they're applicable in a non-profit. I think they're also applicable at the personal level. I think anybody who's given a job has some important aspiration questions, "What am I trying to accomplish?" and some Where to Play, How to Win choices.

"Where, within the confines of this job, should I focus my energies and how do I create lots and lots of value for my employer?" I think they're a set of questions that are broadly applicable.

Brendan: We talked about Procter & Gamble using a lot of these strategies to have a really successful decade, and that continues. Are there other companies that you look to, that other people can look to, and say, "Hey, they're doing the right things?"

Roger: Sure. There's a number of other companies that I work with that use this kind of approach to strategy; Steelcase, the big office furniture manufacturer, and they've been doing extremely well selling high-end office furniture to big corporations.

VF Corporation, the company that owns The North Face and Timberland and Vans and Nautica; what I think you see with companies like that, LEGO, is that they've figured out where exactly they want to play, and how exactly they're going to win. You see a greater level of precision than I think you do in some companies.

Brendan: Do you think investors can look at companies that are using these strategies, and say, "These may be a better investment, down the road?" Can this be a tool for investors as well, when looking at the stock market?

Roger: Absolutely. I really think that it's a way of analyzing companies and just asking yourself the question, from the outside -- you'll never have as much information as the insiders but you can still analyze it -- and say, "Well, where are they playing? Do they have a proposition that actually is winning with the customers?"

I give Jeff Immelt a bunch of credit. I think he inherited a company that maybe had had a Where to Play that expanded a little bit too much, and maybe wasn't as precise about its How to Win. I think he's trimming back on areas that are less advantaged, for him.

Good businesses -- NBC Universal, a great business -- but it fits better with Comcast. When the deal closes, it'll be fully at Comcast. GE Capital, which became a more sprawling empire of things that really worked well and didn't work so well has been shrunk back ...

Brendan: Got in a little bit of trouble back in ...

Roger: [laughs] In 2008? Absolutely.

I think investors, hopefully, are looking at that and saying, "Wow, that's getting to be a more precise strategy, where we can understand why they're playing where they are, and how they're intending to win in each of those places," and would like that.

Brendan: You talk about the idea of maximizing shareholder value as not necessarily the way to go. We've seen the movement "Conscious Capitalism" along the same lines; companies like Starbucks, Google, Whole Foods.

Those two ideas, do you think they can marry well, or do you think they're ... they're not necessarily competing philosophies, are they?

Roger: In some ways they are, and in some ways not. I don't think they have to be.

You're right. I have said, and I feel very, very strongly, that setting as your goal the maximization of shareholder value is a bad idea, because I believe that setting it as your goal makes it less likely that you will maximize shareholder value.

I'm not saying it's a bad thing to have the shareholders do well but the way you do it, I believe, is to say, "We're going to make the customer deliriously happy," and if you do that, you know what's going to happen. You'll do well with that customer, and shareholders will do well.

If instead you say to your employees and to your customers, "We're in business principally to maximize shareholder value," what are your customers going to say?

"Really? Seriously? I thought you were in business to serve us."

What are your employees going to say? "Let me get this straight. You're going to chop me from your roster the minute shareholder value isn't where you think it's at?"

I think it's unhelpful. It makes it harder for the company in question to do the things that make it successful, that increase shareholder value. I've written about this and studied it, and since shareholder value has become more of a rallying cry for companies, shareholders, broadly, have done less well.

What does that tell you? I think it tells you it's an unhelpful goal.

I'm different than the people who say you should sacrifice something for shareholders in order to give that to somebody else; charity or whatever. I don't say that's a trade-off. The question is, how do you behave in a way that actually makes your customers delighted, makes your employees delighted, and also does well by the shareholders?

Brendan: How about short-termism versus long-termism? You know Jeff Bezos at Amazon (NASDAQ: AMZN  ) , notoriously long term. He doesn't care about Wall Street investors and, frankly, they keep rewarding his stock for that.

Do you think this is a good strategy, to focus more on the long term? It's another outcome of the focusing on shareholders versus not, isn't it?

Roger: It is. It is very much so. My general view on that would be that the absolutely critical thing is to be crystal clear with the stock market.

If you are saying to the capital markets, "Hey, look guys, we've just had a great quarter. Our stock should go up," you can't then turn around and say, after you've had not so good a quarter, "Well, this is terrible, the way they're so short-term oriented."

If you're instead like Jeff Bezos or the Google guys, or Apple under Steve Jobs, where you say, "Our job is to do something long-term. We're not actually going to pay attention to you capital markets guys, but don't worry, it'll all be fine," and then they stick to their guns, I think the capital markets then say, "Well, this is true play and fair disclosure. They told us something. They're not changing their behavior, they're not fooling us. They were right up front."

Especially with a Google, who said, before they went public, "Guys, we will never give quarterly guidance. We're going to give as little information to you as legally necessary, and we're managing this for the long term." Then you could either invest or not.

I think some CEOs speak from both sides of their mouth on this. When things are going well they like the short-term focus. When things are going badly they say, "Oh, we have to be long-term."

Brendan: You've talked about this a little bit earlier, but you say a lot of the success of a company, or how we judge companies, shouldn't be as much determined by the stock market. Could you expand on that a little bit? How should companies be judged?

Roger: I really think we have to look at the stock market as simply an output. It's a result. It's not a cause, it's an effect, and I think we should measure companies on the basis of, are they gaining more customers over time, and having those customers loyal and satisfied?

If they are doing that, their stock price will be just fine. If they're not doing that, it might be for a couple of reasons. It might be because even though the market is growing well -- there are lots more customers in the market -- they're being beaten by somebody else. Or for some reason they're in a market where the customers are shrinking; there's fewer of them.

In the former case, they've got to worry about "What's our value proposition in the existing market?" In the latter case, they have to be thinking about, "Should our assets be deployed to serve other customers where there's growth in those customers?"

If you take care of those Where to Play, How to Win choices, the stock market will absolutely take care of itself.

Brendan: We're talking about Playing to Win. Who do you think the book is most applicable for? You mentioned earlier you think it's useful for individuals, but also small business owners, not-for-profit people, big corporations. Who did you write it for?

Roger: I think we wrote it for all of the above. What we wanted to do, the purpose of writing it, was to take some of the mystery and complexity out of strategy. I think lots of people think of it as a mysterious thing. "I know we have to do it, but I'm not sure how."

Then it's been complicated with all sorts of really complex words. "We're going to have a 'resource-based view' of the firm," and "We're going to have 'intrinsic synergies,'" and all of this stuff.

What you'll see is, we've used very plain words; "Where to Play," "How to Win." The purpose is to turn strategy from being something that's complicated, not so much fun and not so terribly effective, to a concept and a practice that's simple, fun, and effective.

It's aimed at anybody who wants to guide the future of their organization and would like a simple, fun, and effective way to do that.

Brendan: One of the things we like here at the Fool are founder-led companies. In your experience, are they better leaders because they had this vision and they came up with the idea for the company, or does that not matter at all?

Roger: I love founder-led companies as well, as it turns out -- maybe because my father was a person who founded a company and led it -- but I think there's a selection bias problem with founder-led companies.

You don't ever hear about crummy founders of founder-led companies because the company doesn't exist, so we see a biased sample, which is of founders who've grown their company up to be big enough and around for us to say, "Wow, that's a great company."

That having been said, I think there is something cool about founders who succeed. They have come up with a Where to Play, How to Win that is robust. Otherwise, we would never see them. They would not exist.

I do think that some professional managers inherit somebody else's Where to Play and How to Win, and instead of saying, "I've got to keep updating this on an ongoing basis," and thinking carefully about it, they just act like it'll go on forever.

This is one of the sad, tough things about the business world, is any Where to Play, How to Win decision will not last forever, and it has to be revisited constantly. I sometimes think that some professional managers don't think that's an inherent, core part of their job, and I wish they did.

Brendan: Roger Martin, coauthor of the excellent book, Playing to Win. Thank you so much for your time today.

Roger: Thanks for having me.


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