With ten countries representing 85 percent of profits, P&G had to focus on winning in those countries. We asked where consumers expected P&G brands and products to be sold, that is, mass merchandisers and discounters, drugstores, and grocery stores. Core became a theme in innovation as well. P&G scientists determined the core technologies that were important across the businesses and focused on those technologies above all others. We wanted to shift from a pure invention mind-set to one of strategic innovation; the goal was innovation that drove the core. Core consumers were a theme too; we pushed businesses to focus on the consumer who matters most, targeting the most attractive consumer segments. Core was the first and most fundamental where-to-play choice—to focus on core brands, geographies, channels, technologies, and consumers as a platform for growth.

To be successful, how-to-win choices should be suited to the specific context of the firm in question and highly difficult for competitors to copy. P&G’s competitive advantages are its ability to understand its core consumers and to create differentiated brands. It wins by relentlessly building its brands and through innovative product technology. It leverages global scale and strong partnerships with suppliers and channel customers to deliver strong retail distribution and consumer value in its chosen markets. If P&G played to its strengths and invested in them, it could sustain competitive advantage through a unique go-to-market model.

It is tempting to believe that strategy in general, and where-to-play and how-to-win choices in particular, are needed only for outward-facing functions—those folks who interact with external consumers and competitors. But every line of business and function

should have a strategy—one that aligns with the strategy of the company overall and decides where to play and how to win specifically for its context. At P&G, corporate functions are all tasked with crafting their own strategies in this way. Joan Lewis, global consumer market knowledge officer, explains: “Where to play and how to win has been a very important framework for us. Organizations are often good at one or the other without realizing that they’re two different sets of decisions. At one point, we weren’t as disciplined about our where-to-play choices. It was everywhere anybody needed consumer insight or anywhere we thought it could add value. Just like a business dilutes its focus and in turn its growth potential when you try to do too many things at a time or do things that are further away from your core strengths, we were relatively diluted in the nature of the impact we could have.

CHAPTER FIVE: Play to Your Strengths

“The roots of the acquisition’s success go back to the initial consideration of the opportunity. As Clayt Daley, who retired as chief financial officer in 2009, explains, P&G had three relevant criteria for any acquisition. First, 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 we thought that we could grow as fast as the market, if not faster.” This was the first, and most obvious, hurdle. Second, the acquisition had to be structurally attractive—a business “that tended to have gross and operating margins above the industry or company average. We were looking 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, there was a final criterion—one that too few companies consider systematically: 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.

Gillette had powerful brands (like Mach 3, Venus, and Oral B) that would importantly add to the P&G beauty and personal-care businesses. And it contributed significant cash flow.

But, as Daley explains, “then you get into ‘what did P&G bring to the party? How good of a fit are they with our sources of competitive advantage?’” The fit was quite good: in terms of where to play, Gillette provided the leading male and female shaving brands and the leading toothbrush business in the world, all large enough to instantly become core businesses for P&G. Gillette also fit well with the strategic choice to grow in the beauty- care and personal-care categories. Plus, geographically, it offered complementary strengths in emerging markets, providing leadership positions in countries where P&G was building presence (like Brazil, India, and Russia). On how to win, Gillette’s brand-building expertise, product innovation, core technologies, and retail merchandising mastery aligned well with P&G’s company-level choices.

But there was still more to consider. “At the end of the day,” Daley continues, “it really comes down to, are you, as an acquirer, going to bring value to that acquisition or not? The acquisition is only really successful if you’re a better owner of the business than either the previous owner or the company as an independent company. That usually gets down to your capabilities, in our case, your consumer capabilities, your branding capabilities, your R&D capabilities, your go-to-market capabilities, your global infrastructure, your back office. Are the capabilities and strengths that you’re bringing to the business going to improve it, grow it faster, and create more value than it did before?” In short, strategic fit between the new business and P&G capabilities was critical.

With capabilities, again, winning is an essential criterion. Companies can be good at a lot of things. But there are a smaller number of activities that together create distinctiveness, underpinning specific where-to-play and how-to-win choices. P&G certainly needs to be good at manufacturing, but not distinctively good at it to win. On the other hand, P&G does need to be distinctively good at understanding consumers, at innovation, and at branding its products. When articulating core capabilities, you need to distinguish between generic strengths and critical, mutually reinforcing activities. A company needs to invest disproportionately in building the core capabilities that together produce competitive

advantage.