Can Your Strategy Pass Its Most Important Test?
By: Roger Martin
Tags: Competition, Competitive Advantage, Playing To Win, Strategy

Playing To Win

Can Your Strategy Pass Its Most Important Test?

Copyright: Roger L. Martin, 2021

I have mentioned the Can’t/Won’t Test in passing a number of times in previous Playing to Win/Practitioner Insights (PTW/PI) pieces (here, here, here & here). A number of readers have asked me to go deeper on it, so I have decided to make my 42nd PTW/PI on Can Your Strategy Pass Its Most Important Test. (Links for the rest of the PTW/PI series can be found here.)

Why This Test is So Important

As I have often emphasized, the heart of strategy is a well-matched Where-to-Play/How-to-Win (WTP/HTW) pair. That means for a given product/service, for a given customer set, the offering is superior to that of competitors because the company achieves either a differentiated or low-cost position, which enables it to earn an attractive return.

Generally speaking, a company won’t have a problem with competitors if it fails to achieve the above. Competitors generally don’t spend a lot of time and resources attempting to copy a mediocre or failing model. However, if the company succeeds, its WTP/HTW acts as a powerful black hole that sucks every competitor toward it. While I am certainly not arguing that it is smart, the most common competitive response to a successful strategy is to try to replicate it as closely as possible.

That is why the only strategies worth investing in are those that pass the can’t/won’t test. The can’t part means that competitors may well try, but try as they may, they just can’t put in place a value equation that matches yours. The won’t part means that while competitors could succeed if they were to try, they choose not to try. If your strategy doesn’t pass the can’t/won’t test, you will be fighting a battle that is headed relatively briskly toward the commodization of your competitive space, which will solve the attraction problem but not in a way that will make you happy!

The Key to Can’t: History/Passage of Time

It turns out that the key to passing the can’t test is history. To use an old (1989) pop hit, you want your competitors to lament as Cher does in the song: “If I could turn back time, if I could find a way.” Because they can’t find a way to turn back time, competitors can’t successfully neutralize your strategy and it passes the can’t part of the can’t/won’t test.

History has the potential to aid in the protection of your strategy from replication by any current or prospective competitors in one of ten ways that I have observed. There may well be more, but these are the ones I have seen.

Because you started deploying your strategy before your current or prospective competitors…

1) …you have had the chance to build greater current scale, which enables you to spend more than any competitor on the scale-sensitive cost items like advertising and R&D. Tide got started before competitors at the inception of the washing machine era and has built a scale advantage over all competitors that enables it to advertise more and spend more on R&D. IKEA started before competitors in user-assembled furniture and has monumental scale advantages.

2) …you are farther down the learning curve in important areas such as customer knowledge or manufacturing expertise. Toyota adopted what are now called lean manufacturing practices before every competitor and is still ahead of its competitors decades later. Zara created the fast fashion category and has more customer and operating knowledge than any competitor.

3) …you have accumulated more essential content. Legal information provider WestLaw started over a century ago to create ‘headnotes’ for cases coming out of the legal system and developed the West Key Number System, which has become the de facto standard for categorizing cases. To compete with WestLaw, a competitor would have to go back a century to recreate the enormous volume of content, essentially an impossible task. Meanwhile WestLaw only needs to update as new cases come out of the courts, a big but doable task. Similarly, Disney has built up a century of content such as beloved characters and storylines that can be repeatedly repurposed that no competitor can match

4) …you have accumulated more data. Uber has more data on drivers, volumes, pricing than any competitor enabling it to optimize its system to a greater extent. Tesla has more fully electric miles driven by its connected vehicles than any competitor enabling it to know more about usage patterns and charging requirements than any competitor.

5) …you have become the default habit of the customers. Because Lego popularized the construction toy segment, millions of grandparents and parents pass on to their children the habit of playing with Lego, making it extremely difficult for competitors to cause children to break their Lego habit once they have started it. Ford F-150 has become the default habit of more full-size pickup truck buyers than for any other competitor.

6) …you have network effects going for you that they can’t access. AT&T was the first to notice and talk about the network effect in telephone services at the beginning of the 20th century and those network effects ensured AT&T’s dominance for the better part of that century. Facebook has such network effects going for it that competitors simply can’t match it.

7) …you have locked up the key assets necessary for competitive advantage. These could be a distribution channel, like office furniture dealers for Steelcase, or physical inputs, like bauxite for Alcan or Alcoa, or locations/real estate, like vending machine locations for Coca Cola or billboard locations for Clear Channel, or regulatory rights, like spectrum for Verizon.

8) …you were able to patent something that legally blocks competitors from copying. This is the primary advantage held by most pharmaceutical companies plus some technology companies, such as patent licensing maven, Qualcomm

9) …you have grown to stand for something unique in the minds of customers. The physical offering of venerable luxury brands such as Hermès, Four Seasons and Dom Pérignon can be copied but customers won’t treat the copier as the real thing.

10) …your assets have been depreciated on your financial statements making it financially easier for you to provide your offering to customers. The Ambassador Bridge connecting Detroit, Michigan and Windsor, Ontario across the busiest border crossing in North America was finished in 1929 at a cost of about $350 million (in 2021 $) and acquired by the Maroun family in 1979 for about $100 million ($2021). The competitive Gordie Howe Bridge will cost at least $6 billion to finish and will have to charge accordingly.

The Key to Won’t: Giving Up Something of Value

The key to passing the won’t test is giving up. If competitors would have to give up something of value in order to replicate your strategy, and they choose not to, even though they have the capabilities to do so, your strategy passes the won’t part of the can’t/won’t test.

The necessity of giving up something of value has the potential to aid in the protection of your strategy from replication by any current or prospective competitor in one of seven ways. Again, there may be more, but these are the ones that I have seen.

Your current or prospective competitors would refuse to accept, as a component of replicating your strategy, the necessity of giving up…

1) …their existing distribution channel. Estée Lauder could have used its lowest-end prestige brand, Clinique, to fight P&G’s relaunched Olay in the mass channels. But the prestige channel would likely have kicked out Clinique and that was too big a price for Lauder to pay. Unfortunately, what worked for P&G on Olay worked against it on Gillette. Had P&G immediately replicated nascent Dollar Shave Club with its own club, its retailers would have revolted. It had to wait until Dollar Shave Club made a huge dent in the business to respond.

2) … their existing asset base. Continental with its Continental Lite offering could possibly have replicated Southwest Airlines, but it would have had to have divested most of its aircraft and many of its gates. Traditional furniture retailers could have at least tried to replicate IKEA’s strategy but that would have meant writing off their showrooms and creating new logistics systems.

3) …their existing employees. Luxury hotel competitors could have attempted to replicate Four Seasons service model, but it would have meant wholesale swapping out of their current hotel staff.

4) …their existing margins. Merrill Lynch probably had every necessary capability to blunt the advance of discount broker Charles Schwab or even defeat it in its early stages. But that would have meant giving up the much higher margins for full-service brokerage. Similarly, newspapers could have fought eBay but that would have meant damaging their most profitable line of business, which was classified ads.

5) …their existing beliefs. Harley Davidson could have defended against Honda’s entry into the US motorcycle market in the early 1960s. But it would have had to give up on its belief that American customers didn’t want 50cc motorcycles — which it was unwilling to do.

6) …their independence. Limo and taxi drivers could have at least curbed Uber’s untrammeled progress by quickly forming their own large-scale Transportation Network Company. But they would have had to give up their independence as either sole proprietors or small companies. That wasn’t in the cards.

7) …their existing habits/practices. The major strategy consulting shops could limit or entirely halt the incursion of the major design firms into their traditional territory of strategy advice. But that would require dropping the habit/practice of only hiring quantitatively focused recruits from quantitatively oriented programs. But they won’t change their existing habits/practices, so design firms have an unimpeded path.

Practitioner Insights

It is too much work to create a unique new strategy for it to be replicated as soon as it shows itself to be successful. In fact, such an activity is unlikely to justify the investment in achieving the temporary uniqueness. That is why before you settle on a strategy and make the necessary investments to build or strengthen the Must-Have Capabilities (MHC) and Enabling Management Systems (EMS), you stress-test your strategy with the can’t/won’t test. You shouldn’t settle for less.

Check the 17 possibilities above to see whether one (or more) applies to you vis-à-vis each of the existing competitors and plausible entrants. And if you can think of another can’t/won’t that applies in your situation: great!

If your strategy doesn’t pass the can’t/won’t test, don’t toss it out. Treat that as a challenge. How can you tweak your WTP/HTW to strengthen your performance on the can’t/won’t test? Would a shift in your WTP move you more into the won’t territory? Could you enhance your HTW to bring into play a can’t element? Or would a greater investment in a particular MHC enhance your can’t performance?

This is what makes the difference between OK strategy and great strategy. It is the moral equivalent of the role of great editing. The writer’s initial story may be pretty good. But a couple rounds of editing by a great editor will make it truly memorable. Don’t settle for a strategy that kind of/sort of passes the can’t/won’t test. Work it until it passes the test with flying colors. It will be worth it!