Specifically, strategy is the answer to these five interrelated questions:

• What is your winning aspiration? The purpose of your enterprise, its motivating aspiration.

• Where will you play? A playing field where you can achieve that aspiration.

• How will you win? The way you will win on the chosen playing field.

• What capabilities must be in place? The set and configuration of capabilities required to win in the chosen way.

• What management systems are required? The systems and measures that enable the

capabilities and support the choices.

P&G’s where-to-play and how-to-win-choices aren’t appropriate for every context. The key to making the right choices for your business is that they must be doable and decisive for you. If you are a small entrepreneurial firm facing much larger competitors, making a how-to-win choice on the basis of scale would not make much sense. But simply because you are small doesn’t mean winning through scale is impossible.

Two questions flow from and support the heart of strategy: (1) what capabilities must be in place to win, and (2) what management systems are required to support the strategic choices?

It isn’t entirely easy to make your way through the full choice cascade. Doing so isn’t a one-way, linear process. There is no checklist, whereby you create and articulate aspirations, then move on to where-to-play and how-to-win choices, then consider capabilities. Rather, strategy is an iterative process in which all of the moving parts influence one another and must be taken into account together.

BUILDING CAPABILITIES DOS AND DON’TS:

• Do discuss, debate, and refine your activity system; creating an activity system is hard work and may well take a few tries to capture everything in a meaningful way.

• Don’t obsess about whether something is a core capability or a supporting activity; try your best to capture the most important activities required to deliver on your where-to-play and how-to-win choices.

• Don’t settle for a generic activity system; work to create a distinctive system that reflects the choices you’ve made.

• Do play to your own, unique strengths. Reverse engineer the activity systems (and where-to-play and how-to-win choices) of your best competitors, and overlay them with yours. Ask how to make yours truly distinctive and value creating.

• Do keep the whole company in mind, looking for reinforcing rods that are strong and versatile enough to run through multiple layers of activity systems and keep the company aligned.

• Do be honest about the state of your capabilities, asking what will be required to keep and attain the capabilities you require.

• Do explicitly test for feasibility, distinctiveness, and defensibility. Assess the extent to which your activity system is doable, unique, and defendable in the face of competitive reaction.

• Do start building activity systems with the lowest indivisible system. For all levels above, systems should be geared to supporting the capabilities required to win.