CHAPTER 9

Five Questions to Build a Strategy

by Roger L. Martin

People make strategy much harder than it needs to be. For some, the problem is that they focus too much on the tools: environmental scans, SWOT analyses, customer analyses, competitor analyses, financial modeling, and so on. Other people get into trouble because they think it’s all about the broad, conceptual, future-oriented, big-picture stuff—not to be confused with tactics. Still other times, people think that strategy is what happens when we think about changing directions.

The reality is that strategy is at some level about all those things, and you can’t do a satisfactory job with your analysis alone, or your big picture alone, or your changes alone. You have to do a bit of work on all of them.

That’s actually a lot easier than it sounds. My preferred approach is to treat strategy making as developing a set of answers to five interlinked questions. The questions—which cascade logically from the first to the last, as seen in figure 9-1—are as follows:

1. What are our broad aspirations for our organization and the concrete goals against which we can measure our progress?
2. Across the potential field available to us, where will we choose to play and not play?
3. In our chosen place to play, how will we choose to win against the competitors there?
4. What capabilities are necessary to build and maintain to win in our chosen manner?
5. What management systems are necessary to operate to build and maintain the key capabilities?

The trick is to have five answers that are consistent with one another and reinforce one another. “Aspirations and goals” to be a great international player and a “where to play” response that is domestic doesn’t match well with a “how to win” on the basis of proprietary R&D—because the competitors with global aspirations will almost certainly out-invest and outflank you. Winning on the basis of superior distribution is unlikely to happen if you don’t have a concrete plan to build the capabilities and a management system to maintain them.

Moving Up and Down the Cascade

So where do you start? Most organizations start at the top with some kind of mission/vision exercise that drives participants around the bend. The reason it drives them crazy is that it is extremely difficult to create a meaningful aspiration/mission/vision in the absence of some idea of “where to play” and “how to win.” That is why those conversations tend to go around in circles with nobody knowing how to actually agree on anything. Any mission or vision will do when you don’t have a thought-through concept of “where to play” or “how to win.”

That said, if you think entirely about “where to play” and “how to win” without consideration of “aspirations and goals,” you may end up with a strategy that is effective for its intended goal but isn’t something you would actually want.

To create a strategy, you have to iterate—think a little bit about “aspirations and goals,” then a little bit about “where to play” and “how to win,” then back to “aspirations and goals” to check and modify, then down to “capabilities and management systems” to check whether it is really doable, then back up again to modify accordingly. Each of the five boxes are related to each other. You must make your strategic choices simultaneously, rather than sequentially, in order for your strategy to make sense.

Consider this example. The CEO of a large Australian company called me to relay a strategy development problem his firm was facing and ask for my advice. My friend explained that each of his five business-unit presidents was using the strategy choice cascade, and that all of them had gotten stuck in the same place. They had chosen a “winning aspiration” and had settled on a “where to play” choice. But all of them were stuck at the “how to win” box.

It is no surprise, I told my friend, that they have gotten stuck. It is because they considered “where to play” without reference to “how to win.”

The challenge here is that both are linked, and together they are the heart of strategy; without a great “where to play” and “how to win” combination, you can’t possibly have a worthwhile strategy. Of course, “where to play” and “how to win” have to link with and reinforce an inspiring “winning aspiration.” And “capabilities and management systems” act as a reality check on the “where to play” and “how to win” choices. If you can’t identify a set of “capabilities and management systems” that you currently have, or can reasonably build, to make the “where to play” and “how to win” choices come to fruition, you have a fantasy, not a strategy.

Many people ask me why “capabilities and management systems” are part of strategy when they are really elements of execution. That is yet another manifestation of the widespread, artificial, and unhelpful attempt to distinguish between choices that are “strategic” and ones that are “executional” or “tactical.” Remember that, regardless of what name you give them, these choices are a critical part of the integrated set of five choices that are necessary to successfully guide the actions of an organization.

I had to tell my Australian friend that locking and loading on “where to play” choices, rather than setting the table for a great discussion of “how to win,” actually makes it virtually impossible to have a productive consideration of “how to win.” That is because no meaningful “where to play” choice exists outside the context of a particular “how to win” plan. An infinite number of “where to play” choices are possible, and equally meritorious—before considering “how to win” for each. In other words, there aren’t inherently strong and weak “where to play” choices. They are only strong or weak in the context of a particular “how to win” choice. Therefore, making lists of “where to play” choices before considering “how to win” choices has zero value in strategy.

Understanding Matched Pairs

You can find a number of relevant business examples that fell in the same trap my friend did. For example, Uber made a “where to play” choice that included China because it’s a huge and important market. But being huge and important didn’t make that choice inherently meritorious. It would have been meritorious only if there had been a clear “how to win” as well—which it appears there never was. Microsoft made a “where to play” choice to get into smartphone hardware (with its acquisition of Nokia’s handset business) because it was a huge and growing market, seemingly adjacent to Microsoft’s own, but it had no useful conception of how that would be twinned with a “how to win”—and it lost spectacularly. P&G made a “where to play” choice to get into the huge, profitable, and growing pharmaceutical business with the acquisition of Norwich Eaton in 1982. While it performed decently in the business, it divested the business in 2009 because, in those nearly two decades, it came to realize that it could play but never win in that still-exciting “where to play.”

No meaningful “how to win” choice exists outside the context of a particular “where to play.” Despite what many think, there are not generically great ways to win—for example, being a first mover or a fast follower or a branded player or a cost leader. All “how to win” choices are useful, or not, depending on the “where to play” with which they are paired. A “how to win” choice based on superior scale is not going to be useful if the “where to play” choice is to concentrate on a narrow niche—because that would undermine an attempted scale advantage.

Undoubtedly, Uber thought its “how to win”—having an easy-to-use ride-hailing app for users twinned with a vehicle for making extra money for drivers—would work well in any “where to play.” But it didn’t work in the “where to play” of China. It turned out that Uber’s “how to win” had a lot to do with building a first-mover advantage in markets like the United States; when Uber was a late entrant, the “where to play” wasn’t a simple extension, and it exited after losing convincingly to first mover Didi. Perhaps Microsoft felt that its “how to win” of having strong corporate relationships and a huge installed base of software users would extend nicely into smartphones, but it most assuredly didn’t. As a Canadian, I can’t help but recall the many Canadian retailers with powerful “how to wins” in Canada (Tim Hortons, Canadian Tire, Jean Coutu) that simply didn’t translate to a “where to play” in the United States. Perhaps there is some solace, however, in retailer Target’s disastrous attempt to extend its U.S. “how to win” into the Canadian “where to play”—turnabout is, I guess, fair play.

The only productive, intelligent way to generate possibilities for strategy choice is to consider matched pairs of “where to play” and “how to win” choices. Generate a variety of pairs and then ask about each:

• Can it be linked to an inspiring, attractive “winning aspiration”?
• Do we currently have, or can we reasonably build, the capabilities that would be necessary to win where we would play?
• Can we create the “management systems” that would need to be in place to support the building and maintenance of the necessary capabilities?

Those “where to play” and “how to win” possibilities for which these questions can plausibly be answered in the affirmative should be taken forward for more consideration and exploration. For the great success stories of our time, the tight match of “where to play” and “how to win” is immediately obvious. USAA sells insurance only to military personnel, veterans, and their families—and tailors its offerings brilliantly and tightly to the needs of those in that sphere, so much so that its customer satisfaction scores are off the charts. Vanguard sells index mutual funds/ETFs to customers who don’t believe that active management is helpful to the performance of their investments. With that tight “where to play,” it can win by working to achieve the lowest cost position in the business. Google wins by organizing the world’s information, but to do that it has to play across the broadest swath of search.

While it may sound a bit daunting, iterating like this actually makes strategy easier. It will save you from endless visioning exercises, misdirected SWOT analyses, and lots of heroically uninformed big thinking. Crafting your strategy in relatively small and concrete chunks and honing the answers to the five questions through iteration will get you a better strategy, with much less pain and wasted time.

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Roger L. Martin is professor emeritus and former dean of the Rotman School of Management at the University of Toronto. He is a coauthor of Creating Great Choices: A Leader’s Guide to Integrative Thinking (Harvard Business Review Press, 2017).

Adapted from content posted on hbr.org, May 26, 2010 (product #H005PU) and “Strategic Choices Need to Be Made Simultaneously, Not Sequentially,” on hbr.org, April 3, 2017 (product #H03K4Y).