The five forces can be divided into two axes. The vertical axis—threat from new entrants and threat of substitute products—determines how much value is generated by the industry (and is therefore available to be split up among industry players). If it is very

difficult for new players to enter the industry and there are no substitutes to the industry’s

product or services to which buyers can turn, then the industry will generate high value. This is why the pharmaceutical industry was so profitable through the 1980s and 1990s; it took enormous capital and expertise to get into the business and the buyers generally had little choice but to pay up for the products, which had no substitutes.

To make good choices, you need to make sense of the complexity of your environment. The strategy logic flow can point you to the key areas of analysis necessary to generate sustainable competitive advantage. First, look to understand the industry in which you play (or will play), its distinct segments and their relative attractiveness. Without this step, it is all too easy to assume that your map of the world is the only possible map, that the world is unchanging, and that no better possibilities exist. Next, turn to customers. What do channel and end consumers truly want, need, and value—and how do those needs fit with your current or potential offerings? To answer this question, you will have to dig deep— engaging in joint value creation with channel partners and seeking a new understanding of end consumers. After customers, the lens turns inward: what are your capabilities and costs relative to the competition? Can you be a differentiator or a cost leader? If not, you will need to rethink your choices. Finally, consider competition; what will your competitors do in the face of your actions? Throughout the thinking process, be open to recasting previous analyses in light of what you learn in a subsequent box. The basic direction of the process is from left to right, but it also has interdependencies that require a more flexible path through it.

STRATEGY LOGIC FLOW DOS AND DON’TS:

• Do explore all four critical dimensions of strategy choice: industry, customers, relative position, and competition.

• Do look beyond your current understanding of the industry, pushing to generate new ways of segmenting the market.

• Don’t accept that entire industries are or must be unattractive; explore the drivers of

different dynamics in different segments, and ask how the game could be changed.

• Do consider both channel and end consumer value equations; if only one of these constituents is happy, your strategy is a fragile one. A winning strategy is a win-win-win; it creates value for consumers, customers, and the company.

• Don’t expect either the channel or the end consumers to tell you what constitutes value;

that is your job to figure out.

• Don’t be blasé about your relative capabilities or costs; compare them with those of your

best competition, and really push to understand how you can win against them.

• Do explore a range of possible competitive reactions to your choices, and ask under what conditions competitors could block you from winning.

Six Strategy Traps:

There is no perfect strategy—no algorithm that can guarantee sustainable competitive advantage in a given industry or business. But there are signals that a company has a particularly worrisome strategy. Here are six of the most common strategy traps:

• The do-it-all strategy: failing to make choices, and making everything a priority. Remember, strategy is choice.

• The Don Ǫuixote strategy: attacking competitive “walled cities” or taking on the strongest competitor first, head-to-head. Remember, where to play is your choice. Pick somewhere you can have a chance to win.

• The Waterloo strategy: starting wars on multiple fronts with multiple competitors at the same time. No company can do everything well. If you try to do so, you will do everything weakly.

• The something-for-everyone strategy: attempting to capture all consumer or channel or geographic or category segments at once. Remember, to create real value, you have to choose to serve some constituents really well and not worry about the others.

• The dreams-that-never-come-true strategy: developing high-level aspirations and mission statements that never get translated into concrete where-to-play and how-to-win choices, core capabilities, and management systems. Remember that aspirations are not strategy. Strategy is the answer to all five questions in the choice cascade.

• The program-of-the-month strategy: settling for generic industry strategies, in which all competitors are chasing the same customers, geographies, and segments in the same way. The choice cascade and activity system that supports these choices should be distinctive. The more your choices look like those of your competitors, the less likely you will ever win.

None of this is complicated (except strategy): It just requires some discipline and perseverance. Treat our tools as you would Sudoku or crossword puzzles. Fill in what you know as you go. Again, it’s not necessary to work through the tools in any kind of sequence. Start where it makes the most sense for your organization. “Get it down; then get it right” is one of our mottos.