Strategy Rules

David B. Yoffie, Michael A. Cusumano

• Publisher: Harper Business
• Year: 2015
• ISBN:
  9780062373977
• Topic: Betriebswirtschaft
• Subtopic: Verwaltung

The authors of the bestselling Competing on Internet Time (a Business Week top 10 book) analyze the strategies, principles, and skills of three of the most successful and influential figures in business—Bill Gates, Andy Grove, and Steve Jobs—offering lessons for all managers and entrepreneurs on leadership, strategy and execution.

In less than a decade, Bill Gates, Steve Jobs, and Andy Grove founded three companies that would define the world of technology and transform our lives. At their peaks, Microsoft, Apple, and Intel were collectively worth some $1.5 trillion. Strategy Rules examines these three individuals collectively for the first time—their successes and failures, commonalities and differences—revealing the business strategies and practices they pioneered while building their firms.

David B. Yoffie and Michael A. Cusumano have studied these three leaders and their companies for more than thirty years, while teaching business strategy, innovation and entrepreneurship at Harvard and MIT. In this enlightening guide, they show how Gates, Grove, and Jobs approached strategy and execution in remarkably similar ways—yet markedly differently from their erstwhile competitors—keeping their focus on five strategic rules.

Strategy Rules brings together the best practices in strategic management and high-tech entrepreneurship from three path-breaking entrepreneurs who emerged as CEOs of huge global companies. Their approaches to formulating strategy and building organizations offer unique insights for start-up executives as well as the heads of modern multinationals.

CHAPTER 1

Look Forward, Reason Back

Nearly everyone is familiar with Edmund Burke’s maxim, “Those who don’t know history are destined to repeat it.” And many of us have taken his admonition to heart. When facing big decisions, our first instinct is to look back at history and rely on its lessons as we think through the challenges that surround us today.

Strategy, however, is fundamentally forward-looking. It’s about planning for the future. Understanding the lessons of the past is clearly important, but developing your playbook on the assumption that the future will be like the past is risky. As Andy Grove liked to say, quoting Einstein, “Visionary thought demands learning from the past while staying free of its limitations.”¹

Master strategists take a different approach. Rather than look backward and reason forward, they look forward and reason back. Part game theorist and part chess master, great strategists “look forward” to determine where they want their companies to be at a given point in the future and then “reason back” to identify moves that will take the business there. This focus on anticipating and shaping the future is particularly important in fast-moving industries, where the difference between being a half step ahead and keeping pace with the field can be the difference between greatness and failure. Bill Gates, Andy Grove, and Steve Jobs owed much of their success to this uncommon ability to stay ahead of their customers and competitors.

This ability should not be confused with clairvoyance. Master strategists do not have a crystal ball: Gates, Grove, and Jobs all made proclamations about the future that turned out to be wrong. But master strategists need to be relentlessly focused on the future, and they must constantly update their forecasts as new information becomes available, and competitors move or otherwise reveal their intentions.

Equally important, masters of strategy like Gates, Grove, and Jobs need to position themselves and their companies to take advantage of new opportunities as they emerge. We frequently give successful CEOs too much credit. With the benefit of hindsight, successful leaders tend to look like great visionaries who perfectly planned all their moves in advance. But in reality, most great strategists are opportunists as well as visionaries. They see early glimmers of an emerging market or identify gaps unfilled by the competition. Then they act, using educated guesses or intuitive leaps without becoming paralyzed by uncertainty or doubt.

For example, when IBM came looking for a new operating system, Gates’s first response was that he wasn’t in that business. However, he quickly realized that IBM was offering Microsoft an opportunity to control the platform for all PC software applications. Grove did not invent the microprocessor, but he was one of the first to understand its potential to reshape the computer industry. Apple did not come up with the idea of a graphical user interface, but Jobs was the first company leader to grasp its revolutionary potential.

In addition, all three CEOs developed and executed strategies for translating these visions into reality. The ability to see the future does not by itself make a great strategist. To be a great strategist, you have to figure out how to get from here to there. In this process, Gates, Grove, and Jobs all had the help of enormously talented executive partners and employees. Like most CEOs, they depended on their management teams and others in the company to propose a range of ideas and get the creative juices flowing. Once presented with a set of choices, they would assess their current positions, study the likely moves and countermoves of other players, and then propose a direction that tied the pieces together. They were “curators” and synthesizers as much as visionaries. If circumstances changed, they would adjust their visions and their plans. This is the hard work of strategy—not deciding where you want to be, but figuring out how to get there; not just looking forward, but also reasoning back and making adjustments as you go.

In this chapter, we make the hard work a bit easier. We break down the process of looking forward and reasoning back into four key components. By mastering these four principles, any manager can learn to plan more effectively for the future:

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RULE 1: LOOK FORWARD, REASON BACK

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1. Look forward to develop a vision of the future; reason back to set boundaries and priorities.

2. Look forward to anticipate customer needs; reason back to match with capabilities.

3. Look forward to anticipate competitors’ moves; reason back to build barriers to entry and lock in customers.

4. Look forward to anticipate industry inflection points; reason back to commit to change—and stay the course.

ANALOGIES IN GAME THEORY AND CHESS

While few great strategists have been trained in game theory, and may or may not play chess, they practice the core tenet of these two disciplines: look forward, then reason back. Game theory, a branch of mathematics often used in economics, teaches that players must look to the end of the game, however that might be defined, find the best possible outcome, and then reason their way backward to discover the decisions required to produce that outcome. To solve a game, you must understand not only your interests but also those of your opponents, so that you can anticipate their moves. This is a relatively simple matter in stylized games, such as the famous Prisoner’s Dilemma. However, in complex games or real-world situations, it can be impossible to calculate all the possibilities or outcomes. Therefore, great game theorists, just like master strategists, must rely to some extent on experience and intuition to win.

Chess masters also look forward to identify the positions they hope to create on the board and then reason back by calculating “lines” of play—if I make this move, then my opponent will probably do this, and then I will do that. Chess masters start with a vision of where the game is heading. The challenge is that, at the outset, the number of possible permutations in each line of play is far beyond human ability to calculate. So world-class chess players learn to “prune,” quickly eliminating inferior moves to reduce the number of lines they need to consider. Even Deep Blue, the IBM supercomputer that defeated world champion Garry Kasparov in 1997, did not have enough computing capacity to calculate every possible position in a game. Although Deep Blue could analyze 200 million moves per second, its algorithm incorporated the ability to recognize and discard obvious bad moves.

Now when we see new things or opportunities, we can seize them. . . . A creative period like this lasts only maybe a decade, but it can be a golden decade if we manage it properly.²

—STEVE JOBS [2000]

LOOK FORWARD: START WITH A VISION OF THE FUTURE

In business, as in game theory and chess, all great strategies start with a vision of the future. In one sense, the recipe is simple: it should include a sense of where the organization should go, what customers are likely to pay for, and how the organization can offer a unique product or service that customers will buy. The devil, of course, lies in the details.

In order to get those details right, successful CEOs rely on both extrapolation and interpretation. Extrapolation is the relatively easy part: analysts, research firms, and academic research can help company leaders identify industry patterns and trends based on current data. However, someone then has to interpret that information—that is, identify the key opportunities and threats created by these trends. Extrapolation alone can be generic and easily imitated. Interpretation is where visionary CEOs make their mark.

Andy Grove based his vision for Intel on an extrapolation known as “Moore’s Law.” In 1964, Gordon Moore, later one of Intel’s cofounders, predicted that the number of transistors on an integrated circuit would double every 18 to 24 months. The industry had delivered on this prediction for more than two decades when Grove began to articulate his vision of the future in the late 1980s. While some saw Moore’s Law as just another example of progress in engineering, he interpreted it as a strategy that would transform the structure of the computer industry. Grove argued that if Intel could continue to drive Moore’s Law, competitors would need massive scale economies to produce integrated circuits, or chips. Inevitably, this would topple the vertically integrated giants that had dominated the sector for decades. At the time, the leading computer companies, led by IBM and Digital Equipment Corporation (DEC), produced everything, from soup to nuts. They manufactured their own semiconductors, built their own hardware, wrote their own operating systems, and distributed their products through in-house sales forces. Several years before it became obvious to the world, Grove foresaw the overthrow of this system and the rise of an industry organized in horizontal layers—chips, hardware, operating systems, applications, distribution—each of which would be dominated by a small number of powerful companies. Based on this vision, he focused Intel’s strategy and organization entirely on achieving leadership in the microprocessor segment.

Bill Gates also built his vision of the future on the trend described by Moore’s Law, but he interpreted the repeated doubling of computing power as a force that would turn hardware into a commodity, leaving software as the true source of value in the industry. In a 1994 interview, he recalled his thinking:

When you have the microprocessor doubling in power every two years, in a sense you can think of computer power as almost free. So you ask, why be in the business of making something that’s almost free? What is the scarce resource? What is it that limits being able to get value out of that infinite computing power? Software.³

This insight was revolutionary and prophetic, as was Gates’s conviction as early as 1975 that there would one day be a personal computer on every desk and in every home. Steve Jobs had a similar vision just a year or so later, when he and Steve Wozniak founded Apple Computer in 1976. Both Microsoft and Apple emerged from this vision at a time when industry luminaries believed the home computer was a silly idea. Gordon Moore once told us that, in the 1970s, he could not see any use for a computer in the home other than for storing recipes in the kitchen. And in 1977, Ken Olsen, the CEO of the world’s second-largest computer company, Digital Equipment Corporation, publicly said, “There is no reason for any individual to have a computer in his home.”⁴ Obviously, Bill Gates disagreed, and, in 1975, he dropped out of Harvard to start Microsoft with Paul Allen and make this vision of the future happen. Paul Maritz, who ran Microsoft’s operating system business from the late 1980s through much of the 1990s, later told us how strongly Gates’s original vision influenced the entire company:

SOURCE: Re-created with permission from Andy Grove’s Intel presentation.

The notion that we were part of creating this new platform that was going to deliver extraordinary functionality and benefits, both in personal lives and in enterprise work environments, was very much on everybody’s mind. And we viewed it as a great mission to be on. We were going to take down the bad guys. We were going to take down the old, proprietary, expensive mainframes, minicomputers, and deliver [new] things.⁵

Later in his career, Gates delegated some of the work of extrapolating from the present. According to Russ Siegelman, who worked directly for Gates in the early 1990s, “[He] wouldn’t say, ‘Here’s where the future is. Gates hired people like Nathan [Myhrvold] to do that.’”⁶ And indeed, Myhrvold, Microsoft’s chief technology officer and the founder of Microsoft Research, was a prolific writer of memos about future trends. But Gates remained firmly in control of Microsoft’s vision and led the way when it came to interpreting the impact these trends would have on the company’s products and competitive position.

While Gates’s vision included a PC in every home, his natural inclination was to build products for other programmers and enterprise customers, not the average consumer. By contrast, Steve Jobs was inspired by the same heady advances in computing power to change the life of the average person. Jobs’s vision was to use technology to fulfill unmet and even unidentified consumer needs. From the very beginning of his career, Jobs was dedicated to transforming mundane computers into “insanely great” products. Eventually, his vision for Apple expanded beyond creating individual products to designing the entire digital experience. Like many others in the industry, Jobs realized that the explosion of digital devices in the 1990s was creating a digital Babel, mad...