The head of marketing and sales has a similar presentation. As an innovator, the company would focus advertising and promotion on new products, while ensuring rapid, widespread retail distribution. Being a solutions provider would move the company directly into engagement with consumers, through websites, social media, and better in-store displays. As a category leader, the company would seek to own the grocery shelf through “sharp pencil” tactics (in other words, tactics tailored to each brand and geographic region) for pricing, promotion, and merchandising.
The company executives ultimately settle on the category leader strategy. It fits best with the capabilities that they already have. Another company, even with the same market dynamics, might choose differently — appropriately so, because of very different capabilities and customs.
A capabilities-driven strategy process, like this one, takes into account “market back” aspirations (the position the leaders want to hold) and “capabilities forward” concerns (the company’s ability to deliver). In the course of discussion, ideas from all four schools of thought come forward: ideas about holding an unassailable position, executing with new capabilities, adapting rapidly to competitive pressures, and focusing on the core business as a platform for growth. It takes time to complete this process, and it is very difficult and stressful at times, but the company gains, in the end, from a far higher level of coherence.
It’s taken 50 years for the field of business strategy to reach the point at which many companies can conduct this kind of conversation effectively. Most companies have relied on business strategists for strategic answers. But now we see that we have to generate our own answers — our own theory of the right to win for each company, with its unique identity and circumstances — and that we have the tools to do so. Given the pressures that business continues to face, this leap in knowledge is coming just in time.
The Sirens of CPG Strategy
by Steffen Lauster
Some strategic concepts, if they’re held as sacrosanct, can lead an entire industry in the wrong direction. Something of that sort has happened during the past two decades in the consumer packaged goods (CPG) industry. Two of the most influential strategy ideas are so widely held, so intuitively appealing, and so apparently true in practice that they are very hard to give up. Yet they can also be quite dangerous to follow.
The first of these misleading ideas is that “bigger is better.” Since the 1980s, CPG companies have tried hard to expand. The conventional wisdom said that the best shareholder returns would accrue to companies with huge brands and the scale to compete in developing markets. The second idea is that “consolidation is inevitable.” For years, experts have predicted that most consumer packaged goods segments would end up like carbonated beverages, shaving products, and disposable diapers — dominated by just two or three big players that took advantage of their scale to acquire or crowd out rivals, while a handful of niche players battled over the scraps.
Recent studies conducted by Booz & Company of total shareholder return among CPG companies show that both of these ideas are, at best, incomplete. Companies that follow them end up sacrificing performance. To be sure, there are categories where scale matters, where one or two players dominate. But many food and consumer products sectors are fragmenting instead, with room for many profitable entrants. In coffee, ready-to-eat meals, shampoos, and pasta sauces, for example, there are more small companies than there used to be; mass and price don’t matter as much as perceived quality. In the New York area, jars of Rao’s Homemade marinara sauce (the same sauce served in the famous Rao’s restaurant of East Harlem) are flying off the shelves.
These days, the best-performing consumer products companies — whether large or small — are those with the greatest coherence. Their market strategy, capabilities system, and product lineup all fit together. They invest their capital and attention in just three to six differentiated capabilities, supporting all the products they offer. This gives them a level of efficiency and effectiveness that most of their competitors can’t match.
In the end, the problem with strategy concepts is not that they’re wrong; they are, in fact, often right. But they are not universal. Beware any strategic idea that most other companies find beguiling. The right strategic destination is different for every company, even in a mature industry like consumer packaged goods.
Steffen Lauster is a partner with Booz & Company based in Cleveland.