Core Capabilities – Playing to Win

One of my customers is growing fast.  They’ve added 25 employees this year, increased revenue 45%, and plan to acquire additional companies to fuel their growth to add new people over the next three years.

If you’re familiar with Gallup’s Strengths Finder, you know individual’s grow by focusing on their strengths. 

The same is true with companies.

In Playing to Win: How Strategy Really Works, A.G. Lafley and Roger Martin dedicate an entire chapter to the importance of Step 4 of the Strategy Cascade: What Capabilities Must be in Place, and why it’s critical when making acquisitions.

Which Capabilities Must We Have?

In Is Your Business Strategy Built to Win?, Strategy – How to Win? we shared two ways to win: cost leadership and differentiation.

Low cost and differentiation may seem like simple concepts, yet they are very powerful way to keep companies honest about their strategies.

Clayt Daley, then P&G CFO in 2009, shared three relevant criteria for any acquisition P&G had:

1. Any acquisition had to be “growth accretive—in a market that was growing (and likely to continue growing) faster than the average in its space and in a category or segment, geography or channel where P&G thought that they could grow as fast as the market, if not faster.” This was their first, and most obvious, hurdle.
2. The acquisition had to be structurally attractive—a business “that tended to have gross and operating margins above the industry or company average. P&G looked for businesses that could generate strong, free cash flow.” Free cash flow was an important driver of value creation for P&G corporately. Once those two hurdles were cleared….,
3. How the potential acquisition would fit with the company’s strategy—its winning aspiration, its choices about where to play and how to win, its capabilities, and its management systems. (Few companies consider these systematically.)

The first two are specific to P&G and help explain their reasons for acquiring Gillette.  Number #3 is valid for any company considering acquisitions.  Many fail to understand the value of Strategy, knowing your core capabilities, and how they distinguish your strategy from your competitors.

In Strategy - What Are Your Core Capabilities? Play to Your Strengths we discussed Core Capabilities at some depth.

The first 3 steps in the Strategy Cascade challenge you.  To craft a Winning Strategy, remember what strategy is, “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.”

Five Strategy Steps are Integrated

Integrated means all 5 steps need to be brought together into the whole.  They are interdependent upon each other.

When your core capabilities are not a complimentary component with your Winning Aspiration, Where to Play, How to Win, and Management Systems, your strategy will be dysfunctional. 

This is especially true when looking at acquisitions.  Playing to Win shares several acquisition failures where these five steps were not integrated, resulting in enormous failure and loss of capital.  Quaker paid $1.7 billion for the Snapple in 1995, promising to turn it into the next Gatorade. Three years later, Quaker unloaded a much-diminished Snapple for just $300 million. Time Warner valued AOL at approximately $190 billion and just ten years later spun it off for a mere $3 billion.

My customer is clear on their core capabilities.  SWT and SWOT help identify core capabilities.  You should also know what capabilities you need to develop to attain your Winning Aspiration.

How well does your business know these 5 key steps to Strategy?  Are you clear on each step in the process?

Remember the result of having your strategy right is Top Line Revenue Growth.  (Read Four Decision Growth Tools – Strategy Yields Top Line Revenue Growth, and Growth Tools – Strategy for Top Line Revenue Growth

If you’re not exceeding your industry standards in growth year over year, you’re falling behind. 

Have a weakness in your strategy?  Ask for help:  dwick@positioningsystems.com

Growth demands Strategic Discipline.

To build an enduring great organization, requires disciplined people, disciplined thought, disciplined action, to produce superior results, and make a distinctive impact in the world.

Discipline sustains momentum, over a long period of time, laying the foundations for lasting endurance.

A winning habit starts with 3 Strategic Disciplines: Priority, Metrics and Meeting Rhythms.   Forecasting, accountability, individual, and team performance improve dramatically.

Meeting Rhythms achieve a disciplined focus on performance metrics to drive growth.

Let Positioning Systems help your business achieve these outcomes on the Four most Important Decisions your business faces:

Positioning Systems helps mid-sized ($5M - $250M) business Scale-UP. We align your business to focus on Your One Thing!  Contact dwick@positioningsystems.com to Scale Up your business! Take our Four Decisions Needs Assessment to discover how your business measures against other Scaled Up companies. We’ll contact you.

NEXT BLOG – Six Common Strategy Traps – Five Strategic Questions

As Playing to Win: How Strategy Really Works shares there is no perfect strategy—no algorithm that can guarantee sustainable competitive advantage. There are signals your company has a particularly worrisome strategy. Next blog six of the most common strategy traps and five strategic questions to create and sustain a lasting competitive advantage.