To thrive in today's environment,firmsmust
adopt a new conception of strategy that goes
beyond their four walls.
by Roger Martin
THE ARGUMENT GOES SOMETHING LIKE THIS: the busineSS W o d d haS
become increasingly fast-changing, complicated and unpredict-
able. The new normal is - to borrow a phrase from the U.S. mili-
tary - a 'VUCA' environment: it is volatile, uncertain, complex
and ambiguous. In such a wodd, we are told, it is futile to plan or
to attempt to design strategy. Rather, strategy should be emer-
gent: firms should monitor their environment and react quickly
to whatever comes up, and the sum of these reactions is the emer-
gent strategy. Furthermore, in an increasingly interconnected
world, notions of competition are outmoded; the new game is
about cooperation, not about creating winning strategies. This is
the increasingly popular view of the state of strategy today.
I respectfully beg to differ. Not with the notion that we face
a fast-paced, complex world, but rather with the idea that this is
something new. Make no mistake about it: the business world
has always been volatile, complex and ambiguous. The pace of
change.may have increased, but making choices that go beyond
the known or the obvious has always been part of strategy. Strat-
egy has never been about analyzing the world to perfection: it has
always been about making intelligent bets. A VUCA wodd doesn't
render the rules and discipline of strategy any less applicable; it ac-
tually raises the bar on the thinking discipline required to succeed.
Rotman Magazine Winter 2012/5
ARTISTS AND DGSIONERS WORK IN WAYS fHAT
ACCOUNTTORIHE FACT IHAT NEW P O S S H U n
W U EMEROE AS THEIR WORK PROORESSES,
ANO SO TOO SHOULD STRATEOISTS.
This is not to say that emergence is an entirely bad idea or
should be avoided as a concept. All strategy choices can and
should be revisited as the context in which they were originally
made changes. Artists and designers work in ways that account
for the fact that new possibilities will emerge as their work pro-
gresses, and so too should strategists. But emergence should
never replace proacfive and organized strategic thought - as it
certainly doesn't for artists and designers. There must be a stra-
tegic direction in thefirstplace, which can be refined and adapted
in reaction to emergent information. Otherwise, a company will
be rudderless, set adrift by random waves and without any way
to reach its overarching goal.
To be certain, the VUCA world is not without its challeng-
es. But it is possible to leyerage the benefits of complexity and
interconnectedness to your advantage. At Procter & Gamble,
one particular strategic choice illustrates a powerful approach to
dealing effectively with a VUCA environment.
Strategic Logic in a VUCA World
Back in 2001, during his second year as CEO of P&G, A.G. Lafley
faced a choice informed by the complicated and interconnected
world of modern compefition, one that pushed the practice of
strategic choice-making into new territory for his company. And
it all started with baby diapers.
6 / Rotman Magazine Winter 2012
Materials science has always been extremely important to
P&G's products. One parficular material - the plastic backing
sheet for the Pampers disposable diaper- is of particular impor-
tance, because P&G makes and sells more Pampers than any
other product in its portfolio. So, not surprisingly, P&G labs has
spent a good deal of time tinkering with that plastic backing. In
2001, the P&G scientists were positively gleeful: in the course
of figuring out every last thing about the strength and adhesive
characteristics of this thin plastic material, they had discovered
a couple of things about other plastic-based consumer product
categories that showed great promise.
First, they figured out a way to make a plastic food wrap
that created a perfect seal against itself, with just the press of a
finger. Imagine that you want to put a left-over piece of chicken
into the freezer for consumption in a few days. You can wrap
it in plastic wrap, and hope that it doesn't get 'freezer burn'
through one of the many small gaps in the wrapping; or you
can place it in an expensive (on a per use basis) zip-top freezer
bag. The P&G scientists found an alternative option: take a
relatively small piece of their invention from a package just
like a Glad or Saran Wrap roll, put the chicken on top, fold the
material over the chicken, press gently with your finger around
the chicken and presto - you have a hermetically-sealed pouch
ready for the freezer.
 Their second innovation was even simpler: a garbage bag
that defies puncture. When it comes to garbage bags, most of
us are annoyed by two things above all: leaks and the annoying
remedy of leaks, which is double-bagging. The new P&G tech-
nology promised an end to both. It was a plasfic bag material so
strong that a grown man would have great difficulty punching
through it using his full force. Using quilted material technoiogy
borrowed from its Bounty brand of paper towels, P&G was able
to create a stronger trash bag that actually used less material
than traditional bags. It was a significant advance.
These ideas were sufficiently excifing that management
agreed to test-market the sealing food wrap (dubbed 'Press'n
Seal'). It was arguably the less compelling of the two concepts,
as the ultra-strong garbage bag (called 'ForceFlex') solved a
well-documented frustrafion for consumers, while Press'n Seal
offered a new benefit that might or might not be of interest to
them. However, test-market consumers loved Press'n Seal. Laf-
ley recalls: "We got a 25-to-3O per cent share in the test market.
We knew we had two things: a great consumer experience that
commanded a significant price premium; and unique product
technology that the [competition] didn't have yet."
Normally at P&G, a 30 per cent share in a test market is
the kind of result that would lead to cheering and the creation
of a new brand with a national launch. But Lafley and some of
his colleagues remembered an eerily-similar situafion some
20 years earlier. In the early 1980's, P&G scientists developed
a way to incorporate the daily recommended intake of calcium
in a single serving of orange juice. And better yet, the calcium
absorbed readily into the body instead of passing quickly through
it, as was the case with many exisfing calcium supplements.
Plus, the calcium had no adverse impact on the taste of the
orange juice. For all the women and children out there who had
to drink milk in order to 'get their calcium' and were either lac-
tose intolerant or just didn't enjoy guzzling milk, this was a big
win. Like Press'n Seal would decades later, the product scored
well in consumer testing and was launched nafionally as Citrus
Hill in 1983 - seemingly on its way to a big win in the marketplace.
However, in its way stood two formidable competitors -
Minute Maid (a Coca-Cola division) and the then-indepen-
dent Tropicana (later acquired by PepsiCo to become yet an-
other front in the Coke-Pepsi war). These two lines dominated
the branded segment of the market, with Tropicana staking
out leadership in the fresh-squeezed segment and Minute
Maid in the bigger segment of juice reconstituted from fro-
zen concentrate. Citrus Hill would compete with both, but to
a greater degree with Minute Maid because Citrus Hill was
also reconstituted.
Suffice it to say. Minute Maid and Tropicana fought their
giant new competitor as if their lives depended on it - which, giv-
en P&G's size and strength, was not an exaggeration. P&G always
aimed for leading market share in whatever category it competed
- and somefimes, but rarely, would settle for second place. So if
P&G was allowed to succeed, the compefitors saw, one of them
would probably die and both could well be displaced. By all ap-
pearances, both treated this as a battle for survival, and not as
just another compefitive launch. P&G was in for a serious fight.
For P&G, this wasn't like entering against hundreds of small
cloth diaper producers with the launch of Pampers or mop manu-
facturers with Swiffer: this meant going up against gigantic, deep-
pocketed and entrenched compefitors. Sadly for P&G, the orange
juice wars turned out to be a humiliafing experience: Citrus Hill
never made meaningful headway against the .defenses of Minute
Maid and Tropicana, and P&G exited the business in less than a
decade. The final insult was that the brand had to be shuttered
rather than sold, because no one could be found to buy the trou-
bled business. The only bright spot was that P&G made a nice
annual profit post-exit, by licensing the calcium technology to its
two former competitors: it turned out that both firms were happy
to pay to add an attractive new featiire to their exisfing offerings.
Fast forward two decades to 2001. As A.G. surveyed the com-
petitive landscape, it was clear that Press'n Seal would be going
up directly against Clorox's Glad product line and SC Johnson's
Saran Wrap line. Both were leading brands with well-established
product lines from two of P&G's biggest competitors in the home
and cleaning products categories. Meanwhile, ForceFlex would
compete against trash-bag leader Glad, plus Reynolds Group
Holdings' Hefty line. Going to market with these two tech-
nologies would mean once again going up against two winning
brands, each backed by large, high-quality organizations. And as
with Coke and Tropicana, Clorox, SC Johnson and Reynolds were
well aware that if they were to give P&G a foothold, they would
be begging for compefifive trouble. Surely they would fight, and
fight hard. And on top ofthat, there were operational concems:
launching Press'n Seal and ForceFlex would require huge capital
investments in manufacturing infrastructure - industry-specific
technology with which P&G had little experience.
As an alternative to launching two new brands under such
inauspicious circumstances, the P&G family care team contem-
plated licensing out its technology - as it had with its calcium
addifive afiter the demise of Citrus Hill. But Lafley wondered
whether there wasn't an even stronger solution in-between the
two extremes of launching and licensing. "Could we create even
more value," he wondered? Lafiey asked Jeff Weedman, his VP
of global business development, to try to find a third way.
Rotman Magazine Winter 2012 / 7
 Traditionally, an 'in-between' option had consisted of a
majority position, or at worst a 50-50 joint venture with clear
control provisions for P&G - essentially using the P&G activity
system with a minority partner sharing the profits. But in this
case, Weedman and his team did something revolutionary: they
created a joint venture with P&G's staunch competitor Clorox
- one in which Clorox, rather than P&G, was in control. In ex-
change for both the P&G technologies and the assignment of 20
P&G employees (mainly R&D folks) to the joint venture, P&G
would receive 10 per cent of the overall Glad business, with an
option to acquire another 10 per cent on preset terms. Clorox
would run everything about the business - manufacturing, dis-
tribution, sales, advertising, etc. With this innovative deal, P&G
relinquished control in a way it simply had never done before.
The venture was launched in January 2003 and by Decem-
ber 2004, P&G happily exercised the option of purchasing an
additional 10 per cent of the business - for $133 million. At the
time of the agreement. Glad was a $400 million business; within
five years, it grew to more than $1 billion, boosted by the strength
of its two new killer products, Press'n Seal and ForceFlex. How-
ever, as important as the financial contributions of this deal were
to P&G, Lafiey believes that the fundamental approach was even
more important, as it sent a powerful signal about the P&G of the
future: "We weren't the old Procter that had to have control, that
had to dominate," he says. "This collaboration with a competitor
- to build a successful leading brand business in a non-competi-
tive space - was huge."
Looking Beyond Your Four Walls
Strategic choices in the modern business world often extend
beyond an organization's walls, and increasingly, the fron-
tier of business will be populated by firms that embrace this
notion. The firms with the greatest capacity to win will be
those whose relationships and strategic choices extend out to
networked stakeholders, business partners and suppliers - and
even to competitors, in the right circurnstances.
Of course, this makes for a much more complicated set of
choices and relationships. To make a system like this work, lead-
ers have to look past strict ownership and transactional thinking.
Relationships must be nurtured in a way that causes information
toflowback and forth, up and down, within and between organi-
zations. If itflowsonly one way - i.e. you share your insights and
choice-making capacity with me but I won't share mine with you
- the iterative up and down, in-and-out flow will be halted and
the iiew structure will break down.
8 / Rotman Magazine Winter 2012
In my view, the Glad joint venture is illustrative of the future
of strategy: the context was new and unique; there was little cer-
tainty; and there was a need to involve other organizations in
joint decision making, which couldn't be controlled unilaterally.
These were VUCA-laden choice points that called for the best
strategic thinking.
Strategizing effectively in a VUGA world means starting
with your imagination. You will never get a homerun like the
Glorox joint venture by benchmarking and copying. Of course,
you won't always be right when you imagine, but you will give
yourself a chance at greatness and can mitigate the downside by
subsequently asking the single-most important question in strat-
egy: once you have imagined a new possibility, you can test the
idea by assessing what would have to be true about the world for
that idea to be a good one. In so doing, you can quickly determine
what you need to know and where you need to explore further in
order to move ahead with the idea.
Taking the time to imagine new possibilities affords an oppor-
tvmity to reflect on the extent to which your picture of the future
involves the participation of partners. To the extent that it does, it
will be necessary to co-design your strategy with those partners,
to create complementary and reinforcing approaches and to gen-
erate an array of different configurations for the partnership.
All of this reflection will take time and effort. At the same
time, it is important to recognize that you will need to make
choices based on the time you have and the information you can
get in that time. Recognize that you don't have perfect knowl-
edge - and you never will, whether the context is declared to be
VUCA or not. Do not wait for perfect knowledge to act. But make
absolutely certain that you define your strategy in advance, and
most importantly, ask what would have to be true for that strategy
to be a smart one. Asking and answering this question is the only
thing that will enable you to monitor whether what you expect to
see is what you actually see, which will give you early warning on
whether you need to change.
If some aspect of what would have to be true is not holding
up, this is the earliest sign that the choice is flawed and has to
be revisited. Because human beings have a robust capacity for
ex-post rationalization, if we don't write down what we believe
in advance, we will rationalize what we see as being more or less
what was expected. For this reason, if you don't write down what
would have to be true, you will stick with strategy choices longer
than you should or have to.
This is also a reason why it is so important to have mea-
sures that reflect what you expect to happen as a consequence of
IHE FIRMS W m i IHE aREATiSr CAPACITY TO WM WUL
NETWORKED SrAIIEII01IIER& SUPPUERS - ANO EVBI TO
COMPETiraRS, NI IHE RMHT GIRCUMSTANCB.
making a strategy choice. If the measures do not show what you
predicted, it is time to revisit your thinking. In a VUCA world in
particular, you are extremely vulnerable if you haven't translated
your strategy into measures, because you will figure out too late
that your strategy has fallen out of step with the world.
In closing
VUCA isn't an excuse for tossing out strategy and winging it; the
more VUCA the world, the more the rules of strategy hold. The
need to collaborate with others isn't an excuse for not thinking
through your strategic choices, it is a signal that you have to think
through theirs, as well. Emergence is nothing but a cop out, and
a self-sealing one at that. If you settle for emergence, you will be
buffeted by the winds caused by the absence of strategic choice,
which in turn will make the world appear more VUCA than ever,
which will convince you to be more emergent yet in your choice
making, and so on.
Thinking in the face of VUCA is a choice. Some firms decide
not to think about the future in a strategic way. It becomes their
culture to believe that they don't have a choice - that their en-
vironment makes it 'impossible to plan.' Other firms have the
opposite culture. Regardless of how VUCA their context, they
believe in choosing based on strategy, even if it is hard. P&G has
such a culture and once again provides inspiration. "I think it's
in our culture... it's in our history, and our belief in a long-term
view," says Lafley. "For instance, in 1998,1 was sent with six other
next-generation P&G leaders out into the desert in Arizona for
a week to come back and tell the then-Chairman and CEO John
Pepper what we would have to do in the first quarter of the 21st
century to strengthen P&G's competitive position. I did the same
with a dozen next-generation leaders in 2008.1 don't know of any
other company that would take its leading managers out of the
business for a full week to work on something like that."
This approach - an openness to the future and to a different
conception of strategy - is what has enabled P&G to win so ef-
fectively, and it is what will lead firms to superior value creation
in a VUCA world. R
Roger Martin is Dean, Premier's Research Chair in Competi-
tiveness and Prosperity and director of the Lee-Chin Family
Institute for Corporate Citizenship at the Rotman School of
Management. His most recent book is. Fixing the Game: Bubbles,
Crashes and What Capitalism Can Learnfromthe NFL (Harvard
Business Review Press, 2011). In November he placed #6 on the Thinkers50, a
UK-based bi-annual ranking of the top 50 global business thinkers.
Rotman Magazine Winter 2012 / 9