The activity system is a visual representation of the firm’s competitive advantage, capturing on a single page the core capabilities of the firm. Articulating a firm’s core capabilities is a vital step in the strategy process. Identifying the capabilities required to deliver on the where-to-play and how-to-win choices crystallizes the area of focus and investment for the company. It enables a firm to continue to invest in its current capabilities, to build up others, and to reduce the investment in capabilities that are not essential to the strategy.

An activity system is of no value unless it supports a particular where-to-play and how-to- win choice. Again, the various choices along the cascade must be considered iteratively.

You need to go back and forth between the choices. You can think through a tentative where-to-play and how-to-win choice. Then you can ask, what activities system would effectively underpin this choice? Once you lay out such a system map, you can ask a sequential set of questions about feasibility, distinctiveness, and defensibility.

It is essential that all of the systems have at least some capabilities and activities that line up with the core capabilities of the organization.

Ultimately, there is no perfect place to start and the process isn’t linear—you need to go back and forth between the levels, just as you need to loop back and forth between the five questions in the strategic choice cascade. However, you can use three principles to help the company put together integrated activity systems at multiple organizational levels.”

(Lafley and Martin, “Playing to Win”, p.122) “1. Start at the Indivisible Level...

Build activity systems starting at the ground level—the point of indivisible activity systems

—and work your way up from there. Why? The capabilities at the indivisible level drive the

ones above.” (Lafley and Martin, “Playing to Win”, p.122-123) “2. Add Competitive Advantage to the Level Below...

Activities that don’t add value to activity systems below should be minimized, because they destroy value. For example, only if the hair-care category can demonstrate value (from sharing of activities and transfer of skills) that is greater than the financial and

administrative costs that it imposes on Head & Shoulders, Nice ’n Easy, Pantene, Herbal

Essences, and so forth, should it exist as a level of aggregation in the corporation. Otherwise, the level should be eliminated.

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.