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.

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.

An activity system captures the most important activities of the organization in a single visual representation. The large nodes of the map are the core capabilities, while the smaller nodes are the activities that support those core capabilities. The activity system should be feasible, distinctive, and defensible if it is to enable you to win. If the system is missing any of these three qualities, you need to return to the where-to-play and how-to- win choices, refining or even entirely changing those choices until they result in a

distinctive and winning activity system.

MANAGEMENT SYSTEMS AND MEASURES DOS AND DON’TS

• Don’t stop at capabilities; ask yourself which management systems are needed to

foster those capabilities.

• Do continue strategic discussions throughout the year, building an internal rhythm that keeps focus on the choices that matter.

• Do think about clarity and simplicity when communicating key strategic choices to

the organization. To get at the core, don’t overcomplicate things.

• Do build systems and measures that support both enterprise-wide capabilities and business-specific capabilities.

• Do define measures that will tell you, over the short and long run, how you are performing relative to your strategic choices.