“Unlike a lot of acquisitions, it wasn’t a successful company buying an unsuccessful company. It was a successful company buying a successful company.”4
It was a matter of leveraging Gillette and P&G capabilities and selectively creating new ones where capabilities did not exist at the level required to win.
Five capabilities core to P&G’s where-to-play and how-to-win choices are consumer understanding, brand building, innovation, go-to-market ability, and global scale. The notion of bringing these capabilities to bear on the Gillette business was top of mind.
Only in India did the scientist really begin to understand the needs of the Indian consumer. He learned what he could not learn inside his lab or from consumer testing outside London. Typically, razors are designed and tested with the assumption that everyone haves as people do in the West, with reliable access to a large sink and running hot water. In India, the team members saw that this simply wasn’t true. Many of the men they met shaved with only a small cup of cold water. Without hot running water to clean the razor, small hairs tend to clog the blade, making shaving far more difficult. Gillette’s new product would take that unique challenge into account. It would be a new kind of razor, custom-built to meet the needs of consumers in India.
For chief information officer Passerini, the capabilities required to make the Gillette acquisition a success looked a little different. For him and his team, the whole undertaking was in large part a systems-integration challenge. They had to integrate two massive businesses, with two very different IT systems, without missing a beat.
Passerini set about innovating his team structures, his partnership models, indeed his whole business, to take advantage of scale rather than be trapped by it.
Typically, in an acquisition, all the focus is on integration, on synergies, and on getting the right leadership in place. But synergy is not strategy.
Strategy mattered most.
An organization’s core capabilities are those activities that, when performed at the highest level, enable the organization to bring its where-to-play and how-to-win choices to life.
Porter noted that powerful and sustainable competitive advantage is unlikely to arise from any one capability (e.g., having the best sales force in the industry or the best technology in the industry), but rather from a set of capabilities that both fit with one another (i.e., that don’t conflict with one another) and actually reinforce one another (i.e., that make each other stronger than they would be alone).
For Porter, a company’s “strategic position is contained in a set of tailored activities designed to deliver it.”9
“Competitive strategy is about being different … [and] means deliberately choosing a different set of activities to deliver unique value,”
Activity system must also be distinctive from the activity systems of competitors.
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.
P&G’s where-to-play choices were coming together (i.e., grow from the core; extend into home, beauty, health, and personal care; and expand into emerging markets), and its how-to-win choices were also becoming clear (i.e., excellence in consumer-focused brand building; innovative product design; and leveraging global scale and retailer partnerships)
Three votes on what constituted the core capabilities of the company, along the following criteria:
First, for a given capability, the group had to be reasonably sure P&G already had real, measurable competitive advantage in that area and could widen its margin of advantage in the future.
Second, the capability had to be broadly relevant and important to the majority of P&G’s businesses.
Third, the capability had to be decisive, a real competitive advantage that was the difference between winning and losing.
Ultimately, the question was, what capabilities must P&G, as a global company, have to win across the industries in which it would compete?
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.
Rather than starting with capabilities and looking for ways to win with those capabilities, you need to start with setting aspirations and determining where to play and how to win. Then, you can consider capabilities in light of those choices. Only in this way can you see what you should start doing, keep doing, and stop doing in order to win.
The five P&G capabilities can be understood as forming the basis of P&G’s company-level activity system.
the core capabilities are shown as large nodes, and the links between the large nodes represent important reinforcing relationships.
reinforcing relationships make each capability stronger, which is an essential characteristic of an activity system: the system as a whole is stronger than any of the component capabilities, insofar as those capabilities fit with and reinforce one another.
innovation must be consumer centered if it is to be meaningful and provide competitive advantage—so innovation requires a deep understanding of the needs of consumers. The goal is to connect consumer needs with what is technologically possible.
Subordinate nodes are the activities that support the core capabilities.
An activity system is of no value unless it supports a particular where-to-play and how-to-win choice.
Once you lay out such a system map, you can ask a sequential set of questions about feasibility, distinctiveness, and defensibility.
In addressing feasibility, ask several questions: is this a realistic activity system to build? How much of it is currently in place, and how much would you have to create? For the capabilities you would need to build, is it affordable to do so?
When you have a feasible activity system, you can ask more questions: is it distinctive? Is it similar to or different from competitors’ systems?
Imagine that a competitor has a different where-to-play and how-to-win choice, but a very similar set of capabilities and supporting activities. In such a situation, the competitor could shift to your potentially superior where-to-play and how-to-win choices and begin to cut in to your competitive advantage.
As Porter notes, not all of the elements need to be unique or impossible to replicate. It is the combination of capabilities, the activity system in its entirety, that must be inimitable.
When it has a feasible and distinctive activity system, you can ask, is the system defensible against competitive action? If the system can be readily replicated or overcome, then the overall strategy is not defensible and won’t provide meaningful competitive advantage.