1. ten pages is your minimum target; dig deep into the readings and lectures; provide unique insight; reach for high-level analysis, presentation and formatting; use 12-point, Times New Roman font; do

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1. ten pages is your minimum target; dig deep into the readings and lectures; provide unique insight; reach for high-level analysis, presentation and formatting; use 12-point, Times New Roman font; double-space; use endnotes to cite your sources using full APA bibliographic formatting including page numbers; pay attention to details; put some time into this assignment; teach me something new.

2. CEO company is Amazon

1. ten pages is your minimum target; dig deep into the readings and lectures; provide unique insight; reach for high-level analysis, presentation and formatting; use 12-point, Times New Roman font; do
UNIVERSITY OF CALIFORNIA, RIVERSIDE School of Business BUS 109 ~ Competitive and Strategic Analysis SPRING 2020 Dr. Sean D. Jasso EXAM 2 Below are the essay questions for your second take -home exam. The exam is intended for you to work independently. Each question is worth a total of 20 points. Please answer each question as thoroughly as possible, providing rich detail from our lectures, readings, and discussions. The organization of your answers, the complexity of your analysis, and the clarity of your critical thinking are the key elements of your evaluation. 1 1. On Functional Strategy – Pertaining to your CEO Project Company a. Among the various functional divisions of the firm, identify the most burning issue whereby your functional strategy (marketing, financial, operational, etc.) impacts the overall corporate AND busines s strategies. Explain in detail. i. More directly, select from two functional areas and discuss the following: 1. Identify the function’s essential goal for 2020 2. What re sources must be employed to effectively realize this goal 3. What measures will indicate whether your functional strategy has produced the required results 2. On Strategy Implementation – Performance Excellence We studied the idea of Six Sigma as a way to create synergy across the organization, to increase the probability of mission buy -in as well as the effective alignment of resources, and, most fundamentally, the production of near perfect output of product and service. Discuss the following in detail: a. What does Six Sigma mean to someone like Jack Welch? Be detailed in your response. i. What is one strength and weakness of this widely subscribed philosophy? b. Lastly, pertaining to your CEO company, identify the ONE burning issue that is a prime candidate for continuous improvement – that one thing holding the firm back from implementing good strategy (remember good strategy clearly defines the obstacles from which we must overcome – bad strategy does not) 3. On Strategic Intent and Strategy Implementation a. First, identify your CEO company’s strategic intent , that is, the ambitious stretch targets that go beyond corporate vision propelling the firm to win. Pull from the readings to support your response b. Second, identify and discuss the important components of your strategy’s implementation – mainly the who, what, how: i. Who are the central players/managers w ho will carry out your strategic recommendations? ii. What must be done – describe the program that is (or needs to be) in place to carry out your strategic recommendations? iii. How will everyone work together – what organizational structure will work best and w hy? 4. On Evaluation and Control Referring to the Balanced Scorecard’s key measurement concepts, illustrate and discuss the following: a. Using the traditional model from Kaplan and Norton customize your team company’s BSC model by identifying and completing ONE objective you will ‘measure’ for each scorecard component. Discuss in detail. b. Additionally, provide a basic, yet customized, illustrative model of your BSC to complement your response. 5. On the Journey a. And, lastly, why does strategy matter? Be specific and brilliant. i. Consider including the key ‘take -aways’ from the course from the readings, lectures, discussions, team work, etc. 1 Recommendations on excellence – ten pages is your minimum target; dig deep into the readings and lectures; provide unique insight; reach for high -level analysis, presentation and formatting; use 12 -point, Times New Roman font; double -space; use endnotes to cite your sources using full APA bibliographic formatting including page numbers; pay attention to details; put some time into this assignment; teach me something new.
1. ten pages is your minimum target; dig deep into the readings and lectures; provide unique insight; reach for high-level analysis, presentation and formatting; use 12-point, Times New Roman font; do
TH E S T R A TEG IS T BE T H E L EA DER Y OUR B U SIN ESS N EED S Cynth ia A . M ontg om ery Ded ic atio n To A nnek e, M ath ea, a n d N ils That y ou m ay f in d p la ces w here y ou can m ak e a d if fe re n ce t h at m atte rs And t o B jø rn , f o re v erm ore Epig ra p h I n th e e n d, it is im porta n t to r e m em ber th at w e c an not b eco m e w hat w e n eed t o b e b y r e m ain in g w hat w e a re . —Max D e P re e, C EO o f H erm an M ille r, i n Lea dersh ip I s a n A rt C on te n ts C over T itle P age D ed ic a tio n E pig ra ph I n tr o ductio n – W hat I L earn ed i n O ffic e H ours C hap te r 1 – S tr a te g y a n d L ead ers h ip C hap te r 2 – A re Y ou a S tr a te g is t? C hap te r 3 – T he M yth o f t h e S uper-M an ag er C hap te r 4 – B eg in w ith P urp ose C hap te r 5 – T urn P urp ose i n to R eality C hap te r 6 – O wn Y our S tr a te g y C hap te r 7 – K eep I t V ib ra n t C hap te r 8 – T he E sse n tia l S tr a te g is t A uth or’s N ote F re q uen tly A sk ed Q uestio ns R eco m men ded R ead in g N ote s I n dex A ck now le d gm en ts A bout t h e A uth or C re d its Copyrig ht About t h e P ublis h er In tr o ductio n What I L earn ed i n O ffic e H ours Y OU’R E A BO UT T O g et a r e v is io nis t v ie w o f s tr a te g y. I t’ s n ot t h at w hat y ou’v e l e arn ed i s i n co rre ct. I t’ s t h at i t’ s i n co m ple te . Str a te g y is a fu ndam en ta l c o urs e a t n early e v ery b usin ess sc h ool in th e w orld . I h av e b een p riv ile g ed to te ach v aria tio ns o f it fo r m ore th an th ir ty y ears — fir s t at th e U niv ers ity o f M ic h ig an , th en at th e K ello gg S ch ool at N orth w este rn , an d fo r th e la st tw en ty -p lu s y ears at th e H arv ard B usin ess S ch ool. For m ost o f th at tim e I w ork ed w ith M BA s tu den ts , u ntil th e c en te r o f m y t e ach in g s h if te d to e x ecu tiv e e d ucatio n. I t w as th is e x perie n ce, p artic u la rly a f iv e-y ear s tin t in H arv ard ’s E ntr e p re n eu r, O wner, P re sid en t p ro gra m (E O P), t h at in sp ir e d th is b ook. 1 W ork in g in tim ate ly w ith le ad ers fro m n early e v ery i n dustr y a n d n atio n a s th ey c o n fro nte d th eir o w n re al- w orld s tr a te g ic is su es c h an ged n ot o nly h ow I te ach s tr a te g y, b ut, m ore f u ndam en ta lly , h ow I th in k a b out it. T he ex perie n ce le d m e to ch alle n ge so m e of str a te g y’s basic p re cep ts , a n d u ltim ate ly to q uestio n b oth th e c u ltu re a n d m in d-s e t th at h av e g ro w n u p a ro und it. E ven m ore im porta n t, te ach in g in E O P fo rc ed m e to c o nfro nt h ow s tr a te g y i s r e ally m ad e i n m ost b usin esse s, a n d b y w hom . All o f th is c o nvin ced m e th at it is tim e fo r a c h an ge. T im e to a p pro ach s tr a te g y in a dif fe re n t w ay an d tim e to tr a n sfo rm th e pro cess fro m a m ech an ic al, a n aly tic al a ctiv ity t o s o m eth in g d eep er, m ore m ean in gfu l, a n d f a r m ore r e w ard in g f o r a l e ad er. T H E R O AD T O H ER E Fif ty y ears ag o str a te g y w as ta u ght as p art o f th e g en era l m an ag em en t cu rric u lu m in m ost b usin ess s c h ools . I n th e a cad em y a s w ell a s in p ra ctic e, it was id en tif ie d a s th e m ost im porta n t d uty o f th e p re sid en t— th e p ers o n w ith overa rc h in g re sp onsib ility fo r se ttin g a co m pan y’s co urs e an d se ein g th e jo urn ey th ro ugh. This vita l ro le en co m passe d both fo rm ula tio n an d im ple m en ta tio n: t h in kin g a n d d oin g c o m bin ed . Alth ough s tr a te g y h ad c o nsid era b le d ep th th en , it d id n’t h av e m uch rig or. Heu ris tic ally , m an ag ers use d th e ubiq uito us SW OT m odel (S tr e n gth s, Weak nesse s, O pportu nitie s, an d T hre ats ) to asse ss th eir busin esse s an d id en tif y a ttr a ctiv e c o m petitiv e p ositio ns. H ow b est t o d o t h at, t h ough, w as f a r fro m c le ar. O th er th an m ak in g lis ts o f v ario us fa cto rs to c o nsid er, m an ag ers had f e w t o ols t o h elp t h em m ak e t h ese j u dgm en ts . In th e 1 980s a n d ’9 0s, m y c o lle ag ue M ic h ael E . P orte r b ro ke im porta n t new g ro und in th e f ie ld . H is w ate rs h ed c am e in f ir m in g u p th e O pportu nitie s an d T hre ats s id e o f th e a n aly sis b y b rin gin g m uch -n eed ed e co nom ic th eo ry an d em pir ic al ev id en ce to str a te g y’s u nderp in nin gs, p ro vid in g a fa r m ore so phis tic ate d w ay to a sse ss a fir m ’s c o m petitiv e e n vir o nm en t. T his le d to a re v olu tio n in both th e pra ctic e an d te ach in g of str a te g y. In partic u la r, man ag ers c am e t o u nders ta n d t h e p ro fo und i m pact i n dustr y f o rc es c o uld h av e on th e s u ccess o f th eir b usin esse s a n d h ow th ey c o uld u se th at in fo rm atio n to positio n t h eir f ir m s p ro pitio usly . Advan ces o ver t h e n ex t f e w d ecad es n ot o nly r e fin ed t h e t o ols b ut s p aw ned a w hole new in dustr y . S tr a te g y in m an y w ay s becam e th e bailiw ic k of sp ecia lis ts — le g io ns of M BA s an d str a te g y co nsu lta n ts , arm ed with fra m ew ork s, te ch niq ues, an d data — eag er to help m an ag ers an aly ze th eir in dustr ie s o r p ositio n th eir f ir m s f o r s tr a te g ic a d van ta g e. I n tr u th , th ey h ad a lo t to o ffe r. M y o w n a cad em ic tr a in in g a n d re se arc h in th is p erio d re fle cte d th is in te lle ctu al e n vir o nm en t, a n d w hat I d id in th e c la ssro om f o r m an y y ears th ere afte r w as a l iv in g e m bodim en t o f t h is “ n ew ” f ie ld o f s tr a te g y. In t im e, t h ough, a h ost o f u nin te n ded c o nse q uen ces d ev elo ped f ro m w hat i n its o w n rig ht w as a v ery g ood th in g. M ost n ota b ly , str a te g y b ecam e m ore ab out fo rm ula tio n th an im ple m en ta tio n, a n d m ore a b out g ettin g th e a n aly sis rig ht a t th e o uts e t th an liv in g w ith a s tr a te g y o ver tim e. E qually p ro ble m atic , th e le ad er’s u niq ue r o le a s a rb ite r a n d s te w ard o f s tr a te g y h ad b een e clip se d . While co untle ss b ooks h av e b een w ritte n ab out str a te g y in th e la st th ir ty years , v ir tu ally n oth in g h as b een w ritte n a b out th e str a te g is t a n d w hat th is vita l r o le r e q uir e s o f t h e p ers o n w ho s h ould ers i t. It w asn ’t u ntil y ears in to th is s h if t th at I f u lly r e aliz ed w hat h ad h ap pen ed . It w as c la ssic S hak esp eare : A s a f ie ld , w e h ad h ois te d o urs e lv es o n o ur o w n peta rd . W e had dem ote d str a te g y fro m th e to p of th e org an iz atio n to a sp ecia lis t fu nctio n. C hasin g a n ew id eal, w e h ad lo st sig ht o f th e v alu e o f what w e h ad — th e r ic h ness o f j u dgm en t, t h e c o ntin uity o f p urp ose , t h e w ill t o co m mit a n o rg an iz atio n to a p artic u la r p ath . W ith a ll g ood in te n tio ns, w e h ad back ed s tr a te g y i n to a n arro w c o rn er a n d r e d uced i t t o a l e ft- b ra in e x erc is e . I n doin g s o , w e lo st m uch o f its v ita lity a n d m uch o f its c o nnectio n to th e d ay – to -d ay l if e o f a c o m pan y, a n d w e l o st s ig ht o f w hat i t t a k es t o l e ad t h e e ffo rt. Teach in g i n t h e E O P p ro gra m d ro ve t h ese i n sig hts h om e f o r m e. When I f ir s t s ta rte d w ork in g w ith th e g ro up, I u se d a c u rric u lu m th at w as much lik e o ne I w ould u se in a n y e x ecu tiv e p ro gra m . T hro ugh a se rie s o f cla ss d is c u ssio ns a n d p re se n ta tio ns, w e d is c u sse d th e e n durin g p rin cip le s o f str a te g y, th e fra m ew ork s th at c ap tu re th em , a n d a s e rie s o f c ase s tu die s th at bro ught th e c o ncep ts a n d te n sio ns a liv e. W e s till d o th at— an d it’ s a v alu ab le part o f w hat w e d o. But in betw een cla ss se ssio ns, th e EO P stu den ts — all acco m plis h ed ex ecu tiv es a n d e n tr e p re n eu rs — sta rte d to a sk if th ey c o uld m eet m e in m y offic e to ta lk a b out v ario us situ atio ns th ey w ere fa cin g in th eir c o m pan ie s. These c o nvers a tio ns o fte n to ok p la ce a t u nusu al h ours , a n d s o m etim es la ste d fa r in to th e e v en in g. M ost s ta rte d o ut p re d ic ta b ly e n ough: W e ta lk ed a b out th e c o nditio ns in th eir in dustr ie s, th e s tr e n gth s a n d w eak nesse s o f th eir o w n co m pan ie s, an d th eir effo rts to b uild o r ex te n d a co m petitiv e ad van ta g e. Som e d is c u ssio ns e n ded t h ere , a n d a t h oughtf u l a p plic atio n o f w hate v er w e’d been d oin g i n c la ss s e em ed t o m eet t h e n eed . Ofte n , th ough, th ese c o nvers a tio ns to ok a d if fe re n t tu rn . A lo ngsid e a ll th e co nven tio nal questio ns w ere ones ab out w hat to do w hen th e lim its of an aly sis h ad b een r e ach ed a n d th e w ay f o rw ard w as s till n ot c le ar; q uestio ns ab out w hen to m ove a w ay f ro m a n e x is tin g c o m petitiv e a d van ta g e a n d w hen to t r y t o s ta y t h e c o urs e ; q uestio ns a b out r e in ven tin g a b usin ess o r i d en tif y in g a n ew p urp ose , a n ew r e aso n to m atte r. E ven th ough m an y o f th e c o m pan ie s at is su e w ere re m ark ab ly su ccessfu l (o ne h ad g ro w n fro m a sta rt- u p to $ 2 billio n in re v en ue in ju st n in e y ears ), a lm ost n one h ad th e k in d o f lo ng-ru n su sta in ab le c o m petitiv e a d van ta g e t h at s tr a te g y b ooks t o ut a s t h e H oly G ra il. Work in g w ith th ese m an ag ers , ty pic ally o ver th re e y ears , a n d h earin g th e sto rie s w ith in th e sto rie s, I c am e to se e th at w e c an not a ffo rd to th in k o f str a te g y a s s o m eth in g f ix ed , a p ro ble m th at is s o lv ed a n d s e ttle d . S tr a te g y— th e s y ste m o f v alu e c re atio n th at u nderlie s a c o m pan y’s c o m petitiv e p ositio n an d uniq uen ess— has to be em bra ced as so m eth in g open , not so m eth in g clo se d . I t i s a s y ste m t h at e v olv es, m oves, a n d c h an ges. In th ese la te -n ig ht o ne-o n-o ne c o nvers a tio ns, I a ls o s a w s o m eth in g e ls e : I sa w th e s tr a te g is t, th e h um an b ein g, th e le ad er. I s a w h ow re sp onsib le th ese ex ecu tiv es f e el f o r g ettin g th in gs r ig ht. I s a w h ow in veste d th ey a re in th ese ch oic es, a n d h ow m uch is a t s ta k e. I s a w th e e n erg y a n d c o m mitm en t th ey brin g to th is e n deav or. I s a w th eir c o nfid en tia l c o ncern s, to o: “ A m I d oin g th is j o b w ell? A m I p ro vid in g t h e l e ad ers h ip m y c o m pan y n eed s? ” And, m ore th an an yth in g, I sa w in th ese co nvers a tio ns th e tr e m en dous pote n tia l th ese le ad ers h old in th eir h an ds, a n d th e p ro fo und o pportu nity th ey hav e to m ak e a dif fe re n ce in th e lif e of a co m pan y. In th ose m om en ts to geth er, w e b oth c am e to u nders ta n d th at if th eir b usin esse s w ere g oin g to pull a w ay fro m th e p ack , to c re ate a d if fe re n ce th at m atte re d , it h ad to s ta rt with t h em . A N EW U NDER ST A NDIN G In a ll o ur l iv es t h ere a re t im es o f l e arn in g t h at t r a n sfo rm u s, t h at d is ta n ce u s fro m th e fa m ilia r, an d m ak e us se e it in new w ay s. F or m e, th e E O P ex perie n ce w as o ne o f th ose tim es. It n ot o nly c h an ged so m e o f m y m ost cen tr a l v ie w s a b out s tr a te g y; it g av e m e a n ew p ers p ectiv e o n th e s tr a te g is t, an d o n t h e p ow er a n d p ro m is e o f t h at r o le . In th ese p ag es I w ill sh are w ith y ou w hat I h av e le arn ed . In d oin g so , I hope th at y ou w ill g ain a n ew u nders ta n din g a b out w hat s tr a te g y is , w hy it matte rs , a n d w hat y ou m ust d o to le ad th e e ffo rt. I a ls o h ope th at y ou w ill co m e to s e e th at b ey ond th e a n aly tic s a n d in sig hts o f h ig hly s k ille d a d vis o rs an d th e e x horta tio ns o f “ h ow -to ” g uid es, th ere is a n eed fo r ju dgm en t, fo r co ntin uity , f o r r e sp onsib ility t h at r e sts s q uare ly w ith y ou— as a l e ad er. Becau se th is r o le r e sts w ith y ou, The S tr a te g is t is a p ers o nal c all to a ctio n. It re in sta te s a n e sse n tia l c o m ponen t o f th e s tr a te g y-m ak in g p ro cess th at h as been ig nore d fo r d ecad es: Y ou. T he le ad er. T he p ers o n w ho m ust liv e th e questio ns t h at m atte r m ost. That’ s w hy m y u ltim ate g oal h ere is n ot to “ te ach s tr a te g y,” b ut to e q uip an d in sp ir e y ou to b e a s tr a te g is t, a le ad er w hose tim e a t th e h elm c o uld h av e a p ro fo und e ffe ct o n t h e f o rtu nes o f y our o rg an iz atio n. Auth or’s N ote The ex am ple s an d sto rie s in th is b ook are b ase d la rg ely o n fiv e y ears ’ t e ach in g in one of th e co m pre h en siv e ex ecu tiv e pro gra m s at H arv ard B usin ess S ch ool. In th e p ag es o f th is b ook, I re fe r to th is p ro gra m a s th e E ntr e p re n eu rs , O wners , P re sid en ts p ro gra m ( E O P), t h ough t h e a ctu al n am e o f t h e pro gra m is dif fe re n t. Y ou can fin d m ore in fo rm atio n ab out vario us e x ecu tiv e p ro gra m s t h e s c h ool o ffe rs a t w ww.e x ed .h bs.e d u. In so m e case s, co m pan ie s’ lo catio ns or certa in deta ils ab out th em or i n div id uals h av e b een c h an ged o r c o m posite s o f stu den t e x perie n ces h av e b een c re ate d s o a s n ot t o v io la te t h e p riv acy o f f o rm er s tu den ts . W here n am es o f c o m pan ie s o r in div id uals a re d is c lo se d , it is d one w ith e x pre ss p erm is sio n, a n d th e d eta ils in th e acco m pan yin g d is c u ssio ns h av e b een ap pro ved fo r r e le ase b y t h e f ir m s. In s o m e in sta n ces, I h av e p re se n te d c ase s in c la ss in a d if fe re n t w ay th an t h ey a re d esc rib ed h ere o r u se d o th er c ase s t h an t h e o nes i n t h is b ook t o m ak e t h e s a m e i m porta n t p oin ts . Chap te r 1 Str a te g y a n d L ead ers h ip Does y o ur c o m pany m atte r? That’ s t h e m ost i m porta nt q uestio n e very b usin ess l e a der m ust a nsw er. If y o u c lo se d its d oors to day, w ould y o ur c u sto m ers su ffe r a ny re a l lo ss? 1 H ow lo ng w ould it ta ke, a nd h o w d iffic u lt w ould it b e, fo r th em to fin d a noth er f ir m t h at c o uld m eet t h ose n eed s a s w ell a s y o u d id ? Most lik ely , y o u d on’t th in k a bout y o ur c o m pany a nd w hat it d oes in quite th is w ay. E ven if y o u’v e h ir e d s tr a te g y c o nsu lta nts , o r s p en t w eeks develo pin g a s tr a te g ic p la n, t h e q uestio n p ro bably s till g iv es y o u p ause . If i t d oes o r i f y o u’r e n ot s u re h ow t o r e sp ond, y o u’r e n ot a lo ne. I k n ow th is b eca use I ’v e s p en t th e b ette r p art o f m y life w ork in g w ith le a ders o n th eir b usin ess str a te g ie s. A gain a nd a gain , I’v e se en th em str u ggle to exp la in w hy th eir co m panie s tr u ly m atte r. It’ s a d iffic u lt questio n. Can y o u a nsw er i t? If yo u ca nnot, o r if yo u’r e u ncerta in o f yo ur a nsw er, jo in m e a s I exp lo re t h is q uestio n w ith a g ro up o f e xecu tiv es n ow g ath erin g. I t is e v en in g o n th e c am pus o f th e H arv ard B usin ess S ch ool. T he k ic k off o rie n ta tio n t o t h e E ntr e p re n eu r, O wner, P re sid en t p ro gra m ( “ E O P” f o r s h ort) , o ne o f t h e f la g sh ip e x ecu tiv e p ro gra m s a t t h e s c h ool, i s a b out t o b eg in . A lo ng w ith fiv e o f m y fe llo w fa cu lty , I s it in th e “ sk y d eck ,” th e la st a n d h ig hest r o w o f s e ats , in A ld ric h 1 12, a n a m phith eate r-s ty le c la ssro om c h ara cte ris tic o f th e s c h ool, a n d w atc h a s th e n ew est g ro up o f e x ecu tiv es s tr e am in to th e r o om . I se e th at th ere are co nsid era b ly m ore m en th an w om en , an d th at th e majo rity a p pear t o b e i n t h eir l a te t h ir tie s t o m id -fo rtie s. M ost e x ude a n a ir o f se aso ned s e lf -c o nfid en ce. T hat’ s n o s u rp ris e — th ey ’re a ll o w ners , C EO s, o r CO Os o f p riv ate ly h eld c o m pan ie s w ith a n nual r e v en ues o f $ 10 m illio n t o $ 2 billio n— th e k in d o f s m all- to m ed iu m -s iz e e n te rp ris e s th at d riv e m uch o f th e glo bal e co nom y. M ost a rriv ed o n c am pus w ith in th e la st f e w h ours a n d h av e had j u st e n ough t im e t o f in d t h eir d orm r o om s a n d m eet t h e m em bers o f t h eir liv in g g ro ups b efo re h ead in g h ere t o A ld ric h . The in fo rm atio n th ey pro vid ed in th eir ap plic atio ns te lls part of th eir sto rie s: R ic h ard , a th ir d -g en era tio n U .S . s te el fa b ric ato r; D ra zen , C EO o f a med ia fir m in C ro atia ; A nna, fo under a n d h ead o f o ne o f th e la rg est p riv ate eq uity gro ups in South A m eric a; an d Pra v een , th e sc io n of a fa m ily co nglo m era te in In dia . B ut th is is ju st a ta ste of th eir div ers ity an d acco m plis h m en ts . T he r ic h er d eta ils a n d th e b re ad th o f th e c la ss w ill e m erg e in t h e w eek s a h ead . As t h e c lo ck t ic k s p ast t h e h our, s o m e l a st- m in ute a rriv als b urs t t h ro ugh t h e door. T hey a re ty pic al f ir s t- tim e E O Pers in th eir la ck o f c o ncern a b out b ein g la te . M ost o f th ese p eo ple h ail fro m w orld s w here m eetin gs d on’t s ta rt u ntil th ey a rriv e. T hat w ill c h an ge i n t h e c o m in g d ay s, a s t h ey m ak e t h e a d ju stm en t fro m th e to p-o f-th e-lin e le ath er ch air s in th eir offic es back hom e to th e sta n dard -is su e s e ats th at lin e th e c la ssro om s. I n deed , f o r th eir tim e h ere , th ey will b e w ith out m an y o f th e s u pports th ey r e ly o n in th eir d aily liv es, s u ch a s ad m in is tr a tiv e a ssis ta n ts a n d s u bord in ate s to w hom th ey c an d ele g ate w ork an d p ro ble m s. F am ilie s a re s tr o ngly d is c o ura g ed f ro m l iv in g n ear c am pus a n d are p ro hib ite d fro m d orm s o nce c la sse s b eg in . B la ck B erry s a n d c ell p hones are a llo w ed , b ut n ev er i n c la ss. A f in al h ush s e ttle s a s t h e p ro gra m b eg in s w ith a n o verv ie w o f w ho’s h ere : 164 p artic ip an ts fro m th ir ty -fiv e c o untr ie s, w ith a c o lle ctiv e 2 ,9 22 y ears o f ex perie n ce. T w o-th ir d s of th eir busin esse s are in se rv ic e in dustr ie s, th e re m ain der i n m an ufa ctu rin g. They a re h ere to p artic ip ate in a n in te n siv e m an ag em en t b oot c am p fo r ex perie n ced busin ess le ad ers . It sp an s to pic s in fin an ce, mark etin g, org an iz atio nal b eh av io r, a cco untin g, n eg otia tio ns, a n d s tr a te g y, a n d ru ns fo r nin e w eek s in to ta l, d iv id ed in to th re e th re e-w eek s e ssio ns s p re ad o ver th re e years . B etw een s e ssio ns, s tu den ts r e tu rn to th eir b usin esse s a n d s ta rt to a p ply what th ey h av e le arn ed . D eb rie fs th e fo llo w in g y ear a re a n o pportu nity fo r fe ed back a n d r e fle ctio n o n w hat h as w ork ed a n d w hat h asn ’t. T his s tr u ctu re has giv en th e fa cu lty an ex ce p tio nal opportu nity to dev elo p a han ds-o n cu rric u lu m th at b rin gs th eo ry a n d p ra ctic e m uch c lo se r to geth er, e v en fo r a sc h ool t h at h as a lw ay s c h am pio ned t h e c o nnectio n. Why d o th ese ta le n te d , s e aso ned m an ag ers f ro m e v ery m ajo r w orld c u ltu re co m e to th is p ro gra m ? A s h ead s o f th eir c o m pan ie s, w hy d o th ey e le ct to sp en d t e n s o f t h ousa n ds o f d olla rs t o s e n d th em se lv es t o s c h ool? TH E V IE W F R O M T H E B A LC O NY If p ast p artic ip an ts a re a n y in dic atio n, th ese e x ecu tiv es h av e n ot c o m e to se ek s p ecif ic a n sw ers to n arro w q uestio ns. T hey h av e c o m e to le arn h ow to be m ore e ffe ctiv e le ad ers a n d to fin d w ay s to m ak e th eir b usin esse s m ore su ccessfu l. S uccessfu l in w hat w ay s, a n d th ro ugh w hat m ean s, fo r m ost, is still a n o pen q uestio n. T hey a re h ere t o t h ro w t h em se lv es i n to t h e p ro gra m , t o be c h alle n ged , t o d is c o ver w hat t h ey m ig ht l e arn i n t h is e n vir o nm en t. This e x perie n ce w ill b e a n i m porta n t j u nctu re f o r m an y, i n t h eir c are ers a n d ev en t h eir l iv es. W hat t h ey l e arn h ere w ill l e ad t h em t o t h in k i n b ro ad er, m ore fa r-re ach in g w ay s. T o ex pla in how th is hap pen s, I’v e alw ay s lik ed th e meta p hor o f a d an ce ta k in g p la ce in a g re at h all.M ost d an cers s p en d a ll th eir tim e o n t h e d an ce f lo or, m oved b y t h e m usic , j o stle d b y d an cers a ro und t h em , co m ple te ly a b so rb ed in th e f lo w . B ut it’ s n ot u ntil th ey e x tr ic ate th em se lv es fro m th e cro w d an d m ove to th e balc o ny ab ove th at th e la rg er pic tu re beco m es cle ar. It is th en th at o vera ll p atte rn s b eco m e ap pare n t an d n ew pers p ectiv es e m erg e. O fte n t h ese r e v eal o pportu nitie s f o r b ette r c h oic es a b out what t o d o d ow n o n t h e d an ce f lo or. Man y E O Pers hav e sp en t years w ith out ev er le av in g th e dan ce flo or. Abso rb ed b y th e d ay -to -d ay c h alle n ges o f r u nnin g a b usin ess, th ey ’v e n ev er gone to th e b alc o ny. O n o ne le v el, o ur jo b is to h elp th em u nders ta n d th e valu e o f g oin g t o t h e b alc o ny i n t h e f ir s t p la ce. O n a n oth er, i t i s t o e q uip t h em with th e to ols to s e e th eir d an ces in n ew w ay s, w ay s th at r e v eal o ptio ns th ey may n ev er h av e c o nsid ere d b efo re . TH E S T R ATEG Y C O URSE When it’ s tim e f o r th e f a cu lty to in tr o duce th eir c o urs e s, I s ta n d a n d g iv e a quic k su m mary of th e w ork w e’ll be doin g in str a te g y. Lik e m ost busin essp eo ple , th ese m an ag ers a re lik ely to b e f a m ilia r w ith a t le ast a v ag ue defin itio n o f str a te g y. T he w ord its e lf co m es fro m th e an cie n t G re ek fo r “g en era l” — sp ecif ic ally f o r th e g en era l o n c am paig n in th e f ie ld . I n b usin ess, str a te g y is a c o m pan y’s c am paig n in th e m ark etp la ce: th e d om ain in w hic h it co m pete s, h ow i t c o m pete s, a n d w hat i t w an ts t o a cco m plis h . We w ill b eg in o ur j o urn ey w ith t h e f u ndam en ta ls — what s tr a te g y i s , h ow t o cra ft it, an d h ow to ev alu ate it. W e’ll th en p ush th e en velo pe o n cu rre n t pra ctic e by ch alle n gin g str a te g y’s elu siv e goal— th e lo ng-ru n su sta in ab le co m petitiv e a d van ta g e— an d in tr o duce a d ynam ic m odel o f str a te g y th at is bette r g ro unded a n d b ette r s u ite d f o r th e c o m petitiv e r e alitie s m ost m an ag ers fa ce. All o f th is m ate ria l is p re lu de to th e la st a n d m ost c h alle n gin g ta sk th ey will fa ce h ere , w hen e v ery m em ber o f th e c la ss w ill b e a sk ed to a p ply th e co ncep ts a n d fra m ew ork s w e’v e b een s tu dyin g to th eir o w n c o m pan ie s a n d pre se n t th eir ow n str a te g ie s fo r critiq uin g by th eir E O P co lle ag ues. T he ex erc is e ta k es m an y d ay s a n d, in th e e n d, th e c la ss v ote s o n a w in ner, w hat th ey c o nsid er t h e “ b est s tr a te g y” i n t h e g ro up. This s te p f ro m t h e g en era l t o t h e h ig hly p artic u la r, f ro m t h e o bje ctiv e t o t h e su bje ctiv e, is w here th in gs b eco m e p ro fo undly r e al f o r m ost e x ecu tiv es. T his is w hen t h e a p pra is a ls o f c ase s— now th eir c ase s— get d ead ly s e rio us a n d th e dis c u ssio ns esp ecia lly h eartf e lt. T hese are co m petitiv e p eo ple . A sp ir it o f in te n se riv alr y pre v ails . M ost re fin e th eir str a te g ie s th ro ugh m ultip le ite ra tio ns, o fte n w ork in g th ro ugh th e n ig ht fo r o ne m ore ite ra tio n. T hese week s a re a rd uous f o r s o m e, e x hila ra tin g f o r o th ers , a n d, f o r m ost, a h ealth y mix o f b oth . GETTIN G T O T H E R EA LIT Y O F Y O UR S T R ATEG Y Hav in g se en h undre d s if n ot th ousa n ds o f su ch str a te g ie s in th eir in itia l fo rm , w hat is c le ar to m e is th is : M an y le ad ers h av en ’t th ought a b out th eir ow n s tr a te g ie s i n a v ery d eep w ay . O fte n , t h ere i s a c u rio us g ap b etw een t h eir in te lle ctu al u nders ta n din g o f s tr a te g y a n d th eir a b ility to d riv e th ose in sig hts hom e i n t h eir o w n b usin esse s. Som e E O Pers fin d it e x tr e m ely d if fic u lt to id en tif y w hy th eir c o m pan ie s ex is t. A ccu sto m ed to d esc rib in g th eir b usin esse s b y th e in dustr ie s th ey ’re in or th e pro ducts th ey m ak e, th ey can ’t artic u la te th e sp ecif ic need s th eir busin esse s f ill, o r t h e u niq ue p oin ts t h at d is tin guis h t h em f ro m c o m petito rs o n an yth in g b ey ond a s u perfic ia l le v el. N or h av e th ey s p en t m uch tim e th in kin g co ncre te ly a b out w here th ey w an t th eir c o m pan ie s to b e in te n y ears a n d th e fo rc es, i n te rn al a n d e x te rn al, t h at w ill g et t h em t h ere . If le ad ers a re n ’t c le ar a b out th is , im ag in e th e c o nfu sio n in th eir b usin esse s th re e o r f o ur le v els lo w er. Y et, p eo ple th ro ughout a b usin ess— in m ark etin g, pro ductio n, s e rv ic e, a s w ell a s n ear th e to p o f th e o rg an iz atio n— must m ak e decis io ns e v ery d ay th at c o uld a n d s h ould b e b ase d o n s o m e s h are d s e n se o f what th e co m pan y is tr y in g to b e an d d o. If th ey d is a g re e ab out th at, o r sim ply d on’t u nders ta n d it, h ow can th ey m ak e co nsis te n t d ecis io ns th at move th e c o m pan y fo rw ard ? S im ila rly , h ow c an le ad ers e x pect c u sto m ers , pro vid ers of cap ita l, or oth er sta k eh old ers to unders ta n d w hat is re ally im porta n t a b out th eir c o m pan ie s if th ey th em se lv es c an ’t id en tif y it? T his is tr u ly b asic — th ere is n o w ay a b usin ess c an th riv e u ntil th ese q uestio ns a re an sw ere d . Even so , th e ex erc is e s in E O P are d esig ned to d o m ore th an se t h ig h sta n dard s, co m munic ate co ncep ts , an d im pro ve partic ip an ts ’ ex is tin g str a te g ie s. T he o vera rc h in g g oal i s s o m eth in g d if fe re n t, s o m eth in g d eep er a n d more p ers o nal. I t i s t o m ak e c le ar t o t h ese e x ecu tiv es t h at s tr a te g y i s t h e h eart of th e ongoin g le ad ers h ip th eir co m pan ie s need fro m th em . T hat’ s w hy co m petitio n fo r “b est str a te g y” is so h ard fo ught an d g en era te s so m uch en erg y. C EO s, accu sto m ed to ask in g q uestio ns an d b ein g d efe rre d to , are ch alle n ged b y th eir p eers a n d e n co ura g ed to th in k a n d re th in k p arts o f th eir str a te g ie s th ey ’d ta k en fo r g ra n te d . M ost o f th em d esc rib e it as a p iv ota l ex perie n ce t h at f u ndam en ta lly c h an ges t h eir v ie w s o f t h eir o w n b usin esse s. Beh in d th e s c en es, th ough, th e re al c o nte st is c lo se r in : It’ s e ach o f th ese le ad ers push in g th eir ow n id eas to th e in cre asin gly hig h sta n dard s th ey th em se lv es h av e c o m e t o d em an d o f e x celle n t s tr a te g ie s a n d o f t h em se lv es a s le ad ers . It’ s th at p ro cess, m ore th an a n y s h ort- te rm a n sw ers th ey m ig ht fin d here , t h at w ill s e rv e t h em w ell i n t h e l o ng r u n. LEA DER SH IP A ND S T R ATEG Y A RE I N SE PA RABLE Man y le ad ers to day d o n ot u nders ta n d th e o ngoin g, in tim ate c o nnectio n betw een le ad ers h ip a n d s tr a te g y. T hese tw o a sp ects o f w hat le ad ers d o, o nce tig htly l in ked , h av e g ro w n a p art. N ow s p ecia lis ts h elp m an ag ers a n aly ze t h eir in dustr ie s an d positio n th eir busin esse s fo r co m petitiv e ad van ta g e, an d str a te g y h as b eco m e la rg ely a jo b fo r e x perts , o r s o m eth in g c o nfin ed to a n an nual p la n nin g p ro cess. I n t h is v ie w , o nce a s tr a te g y h as b een i d en tif ie d , a n d th e n ex t s te p s s p ecif ie d , th e jo b o f th e s tr a te g is t is f in is h ed . A ll th at r e m ain s to b e d one is to im ple m en t th e p la n a n d d efe n d th e s u sta in ab le c o m petitiv e ad van ta g e i t h as w ro ught. O r a t l e ast t h at’ s t h e p ositiv e t a k e o n t h e s to ry . But, if th is w ere so , th e p ro cess o f c ra ftin g a str a te g y w ould b e e asy to se p ara te f ro m th e d ay -to -d ay m an ag em en t o f a f ir m . A ll a le ad er w ould h av e to d o is f ig ure it o ut o nce, o r h ir e a c o nsu ltin g f ir m to f ig ure it o ut, a n d m ak e su re i t’ s b rillia n t. I f t h is w ere s o , t h e s tr a te g is t w ould n’t h av e t o b e c o ncern ed with how th e org an iz atio n gets fro m here to th ere — th e gre at ex ecu tio n ch alle n ge— or h ow it w ill c ap ita liz e o n th e le arn in g it a ccu m ula te s a lo ng th e way . But t h is i s n ot s o . What’ s b een f o rg otte n is th at s tr a te g y is n ot a d estin atio n o r a s o lu tio n. I t’ s not a p ro ble m t o b e s o lv ed a n d s e ttle d . I t’ s a j o urn ey . I t n eed s c o ntin uous, n ot in te rm itte n t, l e ad ers h ip . It n eed s a s tr a te g is t. Good s tr a te g ie s a re n ev er f ro zen — sig ned , s e ale d , a n d d eliv ere d . N o m atte r how c are fu lly c o nceiv ed , o r h ow w ell im ple m en te d , a n y str a te g y p ut in to pla ce in a c o m pan y to day w ill e v en tu ally fa il if le ad ers s e e it a s a fin is h ed pro duct. T here w ill a lw ay s b e a sp ects o f th e p la n th at n eed to b e c la rif ie d . There w ill a lw ay s b e c o untle ss c o ntin gen cie s, g ood a n d b ad , th at c o uld n ot hav e b een fu lly a n tic ip ate d . T here w ill a lw ay s b e o pportu nitie s to c ap ita liz e on t h e l e arn in g a b usin ess h as a ccu m ula te d a lo ng t h e w ay . The str a te g is t is th e o ne w ho m ust sh ep herd th is o ngoin g p ro cess, w ho must s ta n d w atc h , i d en tif y a n d w eig h, d ecid e a n d m ove, t im e a n d t im e a g ain . The s tr a te g is t is th e o ne w ho m ust d eclin e c erta in o pportu nitie s a n d p urs u e oth ers . C onsu lta n ts ’ ex pertis e an d co nsid ere d ju dgm en ts can h elp , as can pers p ectiv es a n d i n fo rm atio n f ro m p eo ple t h ro ughout a n o rg an iz atio n. B ut, i n th e e n d, it is th e s tr a te g is t w ho b ears th e re sp onsib ility fo r s e ttin g a fir m ’s co urs e a n d m ak in g th e c h oic es d ay a fte r d ay th at c o ntin uously re fin e th at co urs e . That i s w hy s tr a te g y a n d l e ad ers h ip m ust b e r e u nite d a t t h e h ig hest l e v el o f an org an iz atio n. A ll le ad ers — not ju st th ose w ho are here to nig ht— must accep t a n d o w n s tr a te g y a s t h e h eart o f t h eir r e sp onsib ilitie s. I s a y little o f th is to nig ht in th e c la ssro om . B ut it is o n m y m in d a s I r e tu rn to m y se at in th e sk y d eck a n d re fle ct o n a ll th e w ould -b e str a te g is ts I’v e work ed w ith o ver th e y ears a s w ell a s th ose o f y ou w ho a re ju st s ta rtin g o ut. My h ope is th at y ou w ill c o m e n ot o nly to u nders ta n d th e v ita l ro le o f th e str a te g is t, b ut a ls o t o e m bra ce i t f o r y ours e lf . Fiv e y ears a g o, w hen I fir s t s ta rte d te ach in g in E O P, I h eard th e p ro gra m desc rib ed as ch alle n gin g an d tr a n sfo rm ativ e. A t th e tim e, “ch alle n gin g” str u ck m e a s r ig ht, b ut “ tr a n sfo rm ativ e” s e em ed c lo se r to h ype. H av in g s e en it h ap pen a g ain a n d a g ain , I n ow s h are t h e o ptim is m . As o ur o rie n ta tio n s e ssio n d ra w s t o a c lo se , I j o in t h e e x ecu tiv es a n d f e llo w fa cu lty a s w e h ead e n m asse to K re sg e H all fo r c o ck ta ils a n d d in ner. O ur work i s a b out t o b eg in i n e arn est. In all m y cla sse s, I pose one fu ndam en ta l questio n: “ A re yo u a str a te g is t? ” Som etim es it’ s sp oken , ofte n it’ s only im plic it, but it’ s alw ays th ere . W e ta lk a bout th e q uestio ns str a te g is ts a sk , a bout h ow str a te g is ts th in k, a bout w hat str a te g is ts d o. M y in te n t is n ot to c o ach th ese execu tiv es in str a te g y in th e w ay th ey m ig ht le a rn fin ance or mark etin g. As busin ess hea ds, th ey are n ’t goin g to be fu nctio nal sp ecia lis ts . B ut t h ey d o n eed t o b e s tr a te g is ts . Are y o u a s tr a te g is t? It’ s a q uestio n a ll b usin ess le a ders m ust a nsw er b eca use s tr a te g y is s o bed ro ck c ru cia l to e very c o m pany. N o m atte r h ow h ard y o u a nd y o ur peo ple w ork , n o m atte r h ow w onderfu l y o ur c u ltu re , n o m atte r h ow g ood yo ur p ro ducts , o r h ow n oble y o ur m otiv es, i f y o u d on’t g et s tr a te g y r ig ht, every th in g e ls e y o u d o i s a t r is k . My g oal in th is b ook is to h elp y o u d evelo p th e s k ills a nd s e n sib ilitie s th is ro le d em ands, a nd to en co ura ge yo u to a nsw er th e q uestio n fo r yo urse lf. I t’ s a d iffic u lt r o le a nd i t m ay b e t e m ptin g t o t r y t o s id este p i t. I t re q uir e s a le vel of co ura ge and open ness to ask th e fu ndam en ta l questio ns a bout y o ur c o m pany a nd to liv e w ith th ose q uestio ns d ay a fte r day. B ut l ittle y o u d o a s a l e a der i s l ik ely t o m atte r m ore . Chap te r 2 Are Y ou a S tr a te g is t? H ER E’S A T EST of your str a te g ic th in kin g. It’ s th e sa m e one I giv e m y E O Pers r ig ht a t t h e b eg in nin g o f t h e c o urs e . Ste p in to th e s h oes o f R ic h ard M an oogia n , C EO o f M asc o C orp ora tio n, a h ig hly s u ccessfu l c o m pan y o n th e v erg e o f a m om en to us d ecis io n. 1 Y ou’v e g ot a b ig p ile o f m oney a n d m ust d ecid e w heth er t o i n vest i t i n a f a r-re ach in g n ew b usin ess v en tu re . T he s ta k es a re h ig h, a n d it’ s n ot a n e asy o r o bvio us d ecis io n. I f y ou d on’t g o a h ead , y ou c o uld b e p assin g u p a n o pportu nity f o r g ro w th in a n ew d ir e ctio n an d h undre d s o f m illio ns o f d olla rs in fu tu re p ro fits . I f y ou t a k e t h e p lu nge a n d t u rn o ut t o b e w ro ng, y ou m ay h av e w aste d $ 1–2 b illio n. E ith er w ay , y ou w ill h av e to liv e w ith th e re su lts fo r m an y y ears . To m ak e th e d ecis io n, y ou’ll fir s t n eed to k now s o m eth in g a b out M asc o a n d its m ark etp la ce. T he sto ry b eg in s m ore th an tw o d ecad es a g o, b ut its l e sso ns a re t im ele ss, a n d t h e i n te rv en in g y ears a llo w u s t o t a k e a l o ng v ie w o n t h e c o m pan y a n d t h e i n dustr y . F IR ST , C O NSID ER T H E C O M PA NY It’ s 1986. M asc o is a su ccessfu l $1.1 5 billio n co m pan y th at has ju st r e co rd ed its tw en ty -n in th c o nse cu tiv e y ear o f e arn in gs g ro w th . Its a b ility to w rin g outs iz ed pro fits out of in dustr ie s th at are neith er hig h te ch nor g la m oro us h as w on it th e m onic k er o f “ M aste r o f th e M undan e” o n W all S tr e et. Its p ortf o lio in clu des fa u cets , k itc h en a n d b ath ro om c ab in ets , lo ck s a n d b uild in g h ard w are , a n d a v arie ty o f o th er h ouse h old p ro ducts . 2 M asc o e x pects th e b usin esse s to g en era te $ 2 b illio n in f re e c ash f lo w o ver th e n ex t fe w y ears . What w ould y ou d o w ith a ll th at m oney ? M asc o ’s le ad ers w an t to ta ck le oth er m undan e b usin esse s w here th eir p ro w ess c an “ ch an ge th e g am e.” T hey en vis io n b eco m in g th e “ P ro cte r & G am ble o f c o nsu m er d ura b le s.” In th eir im med ia te sig hts is th e U .S . h ouse h old fu rn itu re b usin ess, w here th ey se e an oth er o pportu nity t o s e iz e p ro fita b le d om in an ce o f a s le ep y i n dustr y . Is M an oogia n ’s id ea a p ro m is in g o ne? I f s o , is M asc o th e c o m pan y to le ad th e c h arg e? When I r a is e t h ese q uestio ns t h e f ir s t m orn in g i n c la ss, t h e e x ecu tiv es d on’t im med ia te ly j u m p u p. L ik e y ou, t h ey e n jo y b ein g t h e d ecis io n m ak er; i t’ s t h e ro le t h ey p la y i n t h eir r e al- lif e j o bs, b ut t h ey ’re r e lu cta n t t o p ut t h em se lv es o n th e lin e w ith a g ro up th ey ’v e ju st m et. W ith so m e c o ax in g, th ough, w e’re so on d eep i n to M asc o ’s s itu atio n a n d t h e i s su es M an oogia n f a ces. The case fo r M an oogia n ’s str a te g y lo oks co m pellin g. T hro ugh a lo ng re co rd o f tr iu m phs in d ura b le g oods in dustr ie s, M asc o d is tin guis h ed its e lf th ro ugh effic ie n t m an ufa ctu rin g, good m an ag em en t, an d in novatio n. Its big gest s u ccess to d ate w as r e in ven tin g th e f a u cet b usin ess. P rio r to M asc o ’s en tr y , th e in dustr y w as h ig hly fra g m en te d a n d h ad a g en era l la ck o f b ra n d re co gnitio n, m in im al ad vertis in g, an d a lo w le v el o f sa le sp ers o n tr a in in g. Lev era g in g th e c o m pan y’s d eep m eta lw ork in g e x pertis e , g arn ere d in its e arly years a s a su pplie r to th e a u to m otiv e in dustr y , M asc o ’s fo under, R ic h ard ’s fa th er A le x , so lv ed an en gin eerin g p ro ble m th at m ad e o ne-h an dle fa u cets work ab le . W hen he co uld n’t in te re st fa u cet co m pan ie s in his pate n te d in novatio n, M asc o b eg an m ak in g a n d s e llin g t h e f a u cets i ts e lf . Hom eo w ners lo ved th em , f in din g th em a b ig im pro vem en t o ver tr a d itio nal fa u cets th at fo rc ed u se rs to fid dle w ith h ot a n d c o ld w ate r s e p ara te ly . T his ex tr a fu nctio nality w as partic u la rly valu ed in kitc h en s w here utility an d main te n an ce-fre e opera tio n w ere im porta n t. N ot neg le ctin g tw o-h an dle fa u cets , th e co m pan y in tr o duced a m odel w ith a n ew ty pe o f v alv e. T his desig n, a ls o p ate n te d , e lim in ate d ru bber w ash ers , th e m ajo r c au se o f fa u cet fa ilu re . Masc o w en t o n to in novate in m an y o th er a sp ects o f th ese n ew p ro ducts , fro m b asic m an ufa ctu rin g to d is tr ib utio n a n d m ark etin g. It w as th e fir s t to cre ate b ra n d r e co gnitio n f o r a f a u cet w ith i ts D elta a n d P eerle ss b ra n ds. I t w as th e fir s t to in tr o duce s e e-th ro ugh p ack ag in g, to m ark et fa u cets d ir e ct to th e co nsu m er th ro ugh th e d o-it- y ours e lf c h an nel, a n d to a d vertis e f a u cets o n T V durin g th e O ly m pic s. In re fa sh io nin g a n in dustr y o f “ m e-to o” p ro ducts a n d bold ly se ttin g its e lf ap art fro m oth ers , M asc o dem onstr a te d th at it w as cre ativ e, a b le t o a p ply t r a d itio nal c ap ab ilitie s i n n ew w ay s, a n d w illin g t o t a k e ris k s an d m ak e th em p ay o ff— ab ilitie s R ic h ard M an oogia n h oped w ould en ab le h im t o t r a n sfo rm t h e f u rn itu re b usin ess. NO W C O NSID ER T H E I N DUST R Y At th e tim e M an oogia n w as w eig hin g th is d ecis io n, h ouse h old fu rn itu re was a $ 14 b illio n b usin ess i n t h e U nite d S ta te s t h at d id n’t m ak e m uch m oney . With h ig h tr a n sp orta tio n c o sts , lo w p ro ductiv ity , a n d e ro din g p ric es, it h ad ab out 2 p erc en t a n nual g ro w th , a n d r e tu rn o n s a le s, o n a v era g e, w as a b out 4 perc en t. T here w ere m ore th an 2 ,5 00 m an ufa ctu re rs , b ut 8 0 p erc en t o f s a le s cam e f ro m o nly f o ur h undre d . N ot a ll p la y ers w ere s m all, b ut m ost w ere , a n d man y w ere f a m ily f ir m s t h at h ad s tu ck i t o ut t h ro ugh t h ic k a n d t h in , r e lu cta n t to l e av e t h e o nly l iv elih ood t h eir f a m ilie s h ad k now n f o r g en era tio ns. M ak in g matte rs w ors e , both sa le s an d pro fits w ere cy clic al an d tie d to bro ad eco nom ic f a cto rs s u ch a s n ew h om e s ta rts a n d s a le s o f e x is tin g h om es. Man ag em en t i n t h e i n dustr y w as g en era lly r e g ard ed a s u nso phis tic ate d , a n d had n’t m ad e m an y sig nif ic an t c h an ges in th e p re v io us fif ty y ears . W esle y Collin s, a fu rn itu re e x ecu tiv e a n d tr e n ch an t o bse rv er o f in dustr y c o nditio ns, su m med i t u p d ra m atic ally : When e very th in g e ls e in o ur liv es w as c h angin g, fu rn itu re sto od its gro und. W hile w e p ut a m an o n t h e m oon . . . f u rn itu re p ut a noth er s te a k on th e b ackya rd g rill a nd m utte re d , “ M y g od, th e p ric e o f o ak w en t u p again .” When v id eo ta pe p ut th e h om e m ovie c a m era in th e tr a sh c a n fo re ver, and ta pe c a sse tte s p ut th e p la stic r e co rd -m aker s ix fe et u nder, a nd w ord pro cesso rs p ut ty p ew rite rs in th e c lo se t, a nd m ic ro w ave p opco rn k ille d th e m akers o f p o pco rn m akers . . . th e fu rn itu re in dustr y s a id , “ Thanks, but w e’ll s ta nd p at.” While w e sa t o n o ur tu ffe ts , th e c o nsu m er fo rg ot a ll a bout u s. O ur sh are o f c o nsu m er e xp en ditu re s s lip ped y ea r a fte r y ea r. W e lo st o ver 4 0 perc en t of th e re ta il fu rn itu re sp ace in A m eric a , 25 perc en t of th e re ta ile rs s h ut th eir d oors, a nd d ep artm en t s to re s d is c o ntin ued fu rn itu re rig ht a nd le ft fo r p ro ducts th at g ave th em a b ette r r a tio o f m arg in a nd tu rn s p er s q uare f o ot. 3 Collin s w en t o n to s a y th at “ th e a v era g e to bacco c h ew er s p en ds m ore fo r Lev i G arre tt C hew in g T obacco e v ery y ear t h an h e d oes f o r f u rn itu re .” Most fu rn itu re p urc h ase s w ere d is c re tio nary a n d h ig hly p ostp onab le , a n d, as C ollin s n ote d , th ere w ere m an y s u bstitu te s a n d lo ts o f c o m petitio n f o r th e cu sto m er’s d olla r. N ew i n novatio ns a n d d esig ns w ere q uic k ly k nock ed o ff b y co m petito rs , elim in atin g an y ad van ta g e th e in novato rs mig ht hav e mom en ta rily e n jo yed . Equally d is tr e ssin g, in th e U nite d S ta te s, th ere w as little b ra n d r e co gnitio n in th e in dustr y . C usto m ers d id n’t k now m uch a b out fu rn itu re a n d w ere n ’t motiv ate d en ough to fin d o ut. T here w as little ad vertis in g an d co nsu m er re se arc h h ad sh ow n th at m an y A m eric an ad ults co uld n ot n am e a sin gle fu rn itu re b ra n d. T hin k f o r a m in ute : “ W hat b ra n d o f s o fa d o y ou h av e i n y our liv in g ro om ?” W hen I p ic k a n e x ecu tiv e in th e c la ss a t ra n dom a n d a sk th is questio n, th e re sp onse is u su ally a s ta rtle d lo ok, a lo ng m om en t o f s ile n ce, an d t h en , s o m eth in g l ik e “ B ro w n l e ath er? ” E very one l a u ghs, b ut w hen I o pen th e q uestio n t o t h e e n tir e c la ss, o nly a f e w h an ds g o u p a n d t h ey ’re i n ev ita b ly ex ecu tiv es f ro m E uro pe. Y et w hen I a sk h ow m an y o f th em k now th e b ra n d of c ar th eir n eig hbors d riv e, v ir tu ally a ll h an ds g o u p. Y ours p ro bab ly w ould , to o. On to p of its m ark etin g ch alle n ges, th e in dustr y w as rid dle d w ith in effic ie n cie s, e x tr e m e p ro duct v arie ty , a n d lo ng le ad tim es th at fru str a te d cu sto m ers . B uyers o fte n re ceiv ed p artia l sh ip m en ts ; fo r e x am ple , a d in in g ta b le m ig ht a rriv e w eek s o r m onth s b efo re t h e c h air s t h at w en t w ith i t. The r e al i s su e, t h ough, i s n ot w heth er t h ere a re p ro ble m s i n t h e i n dustr y b ut what th ey m ean . A re all th ese p ro ble m s an o pportu nity fo r a co ura g eo us co m pan y w ith t h e r ig ht s k ills ? O r a re th ey r e d f la g s w arn in g o uts id ers t o s ta y aw ay ? When I ask m y ex ecu tiv es w heth er th ey w ould ta k e th e plu nge, m ost re sp ond w ith a r e so undin g “ Y es!” T hey ’re e n erg iz ed , n ot in tim id ate d , b y th e ch alle n ges. Most sa y , in effe ct, “W here th ere ’s ch alle n ge, th ere ’s opportu nity .” If it w ere a n e asy b usin ess, th ey sa y , so m e c o m pan y w ould alr e ad y h av e s e iz ed th e o pportu nity : I t w ould b e m uch to ugher to d is lo dge a str o ng le ad er th an to g ain g ro und in a n in dustr y lik e th is w here th ere a re n o big p la y ers , n o M ic ro so fts a lr e ad y e sta b lis h ed . “ It’ s a h ors e ra ce,” s o m eo ne once s a id , “ an d a ll t h e o th er h ors e s a re s lo w .” Furth er, th ey n ote , th e fu rn itu re in dustr y is m uch lik e th e fa u cet in dustr y befo re M asc o en te re d . The opportu nity is a gre at fit with M asc o ’s man ufa ctu rin g sk ills , its m ark etin g sa v vy, an d its str o ng m an ag em en t cap ab ilitie s. It’ s a n oth er c h an ce fo r M asc o to b rin g m oney , so phis tic atio n, an d d is c ip lin e t o a f ra g m en te d , u nso phis tic ate d , a n d c h ao tic i n dustr y . Opponen ts c an ’t g et p ast h ow a w fu l th e fu rn itu re b usin ess is . T hey c an ’t im ag in e a n y c o m pan y o verc o m in g s u ch h uge h urd le s. S o th e a rg um en ts g o back a n d f o rth . E nth usia sm a n d a g ung-h o s p ir it o n o ne s id e s tr u ggle a g ain st cau tio n an d co ncern on th e oth er. In one dis c u ssio n, an ex asp era te d pro ponen t b lu rte d o ut, “ L ook, t h is i s n ’t a b out b ein g p assiv e i n vesto rs i n s o m e yet- to -b e-in ven te d f u rn itu re i n dustr y i n dex f u nd. W e’re g oin g t o b e p la y ers i n th is g am e. W e c an m ak e th in gs h ap pen . If S ta rb uck s o r U nder A rm our h ad lis te n ed t o y ou n ay sa y ers , t h ey w ould n’t h av e d one a n yth in g!” What’ s y our i n clin atio n a t t h is p oin t? Usu ally w hen th e tim e c o m es fo r a d ecis io n in m y c la sse s, “ D o it” w in s defin itiv ely , b y a t l e ast a 2 -to -1 m arg in . So w hat, i n f a ct, h ap pen ed ? Masc o d id e n te r a n d in a b old w ay . O ver tw o y ears , it b ought H en re d on (h ig h-e n d fu rn itu re ) fo r $ 300 m illio n, D re x el H erita g e (m id -p ric e) fo r $ 275 millio n, a n d L ex in gto n F urn itu re ( lo w –m id dle ) f o r $ 250 m illio n. C om bin ed , th e r e v en ues f ro m t h e t h re e m ad e M asc o t h e s e co nd-la rg est p la y er i n t h e U .S . fu rn itu re in dustr y . It fo llo w ed u p b y sp en din g $ 500 m illio n fo r U niv ers a l Furn itu re L im ite d (lo w en d), w hic h had m an ufa ctu rin g opera tio ns in te n co untr ie s o n th re e co ntin en ts an d fo llo w ed a re ad y-to -a sse m ble co ncep t— co m ponen t p arts w ere m an ufa ctu re d in lo w -c o st co untr ie s an d sh ip ped in co nta in ers to fiv e U .S . lo catio ns fo r asse m bly . N ow M asc o w as b oth th e la rg est fu rn itu re co m pan y in th e w orld an d one of th e only fir m s w ith pro ducts s p an nin g n early e v ery p ric e p oin t, a s tr a te g y th at h ad w ork ed w ell fo r t h e f ir m i n f a u cets . In to ta l, M asc o sp en t $ 1.5 b illio n acq uir in g te n co m pan ie s an d an oth er $250 m illio n u pgra d in g th eir m an ufa ctu rin g fa cilitie s a n d in vestin g in n ew mark etin g p ro gra m s. Pre se n tin g M an oogia n w ith its G old A ward in th e B uild in g M ate ria ls In dustr y , t h e Wall S tr e et T ra nsc rip t c ite d h is im agin atio n, fo re sig ht a nd s tr a te g ic s e n se . . . . M anoogia n h as a cq uir e d lo w g ro w th , m atu re p ro ducts a nd b eco m e th e d om in ant p la yer in th ose pro duct c a te g orie s. . . . [ H ]is m ost r e cen t s e t o f a cq uis itio ns h as b een in th e f u rn itu re i n dustr y . H is s tr a te g y i s t o d o t o t h e f u rn itu re i n dustr y w hat he d id t o t h e f a ucet a nd k itc h en c a bin et i n dustr y . . . . 4 With th is h is to ric al u pdate , th e c la ssro om c ra ck le s w ith e n erg y. E xecu tiv es who h ad a d vocate d fo r b old a ctio n n od th eir h ead s to o ne a n oth er o r g iv e each o th er h ig h-fiv es a n d th um bs-u p, p le ase d th at th ey ’v e n aile d th eir fir s t Harv ard c ase . I h ear little “ to ld -y ou-s o ” c o m men ts d ir e cte d a t th e n ay sa y ers , who s it in g rim s ile n ce. S om eo ne o nce e v en c alle d a cro ss th e ro om : “ D on’t worry , B ob. O ne b ad d ecis io n w on’t ru in y our re p uta tio n. W e w on’t h old it ag ain st y ou t h e r e st o f t h e p ro gra m .” But i t d oesn ’t t a k e l o ng f o r t h ose w ho o ppose d e n tr y t o s p eak u p. “B ut h ow d id M asc o d o?” “T hey b ought g re at b ra n d n am es,” s a y s s o m eo ne. “B ut h ow d id t h ey d o?” “T hey ’re n um ber o ne i n m ark et s h are . W hat m ore d o y ou w an t? ” “B ut d id t h ey m ak e m oney ?” There , a s i t’ s s a id , i s t h e r u b. When I p ost M asc o ’s fin an cia l re su lts , s ile n ce fa lls a s p eo ple a b so rb th e num bers . I n a f e w s e co nds, t h ere a re w his p ere d e x ple tiv es a ro und t h e r o om . Afte r th ir ty -tw o y ears o f c o nse cu tiv e e arn in gs g ro w th , M asc o ’s n et in co m e fe ll 3 0 p erc en t. T w o y ears la te r, o pera tin g e arn in gs fro m fu rn itu re c am e to $80 m illio n o n s a le s o f $ 1.4 b illio n, a n o pera tin g m arg in o f 6 p erc en t, v ers u s 14 p erc en t f o r th e r e st o f th e c o m pan y. A fte r m an y y ears o f s tr u ggle , M asc o an nounced i ts i n te n tio ns t o s e ll i ts f u rn itu re b usin esse s, l e ad in g o ne a n aly st t o co m men t: In th e s p rin g, m anagem en t w ill g o o n th e r o ad w ith r e sta te d fin ancia ls illu str a tin g th eir “ co re ” e a rn in gs g ro w th a s if th ey n ever e n te re d th e fu rn itu re b usin ess. T hey h ope to r e b uild in vesto r c o nfid en ce in th e o ld [p re -fu rn itu re ] M asc o . . . a s a g ro w th c o m pany b y s h ow in g th eir tr a ck re co rd and pro sp ects in th e build in g m ate ria ls are n a. G iv en th e $2 billio n f u rn itu re “ m is ta ke,” t h is w on’t b e e a sy . In a sa d p osts c rip t, M asc o d is c o vere d th at e x itin g th e fu rn itu re b usin ess was m uch h ard er th an e n te rin g it. A fte r a n um ber o f d eals fe ll th ro ugh, it ev en tu ally su cceed ed in se llin g its fu rn itu re fir m s, a t a lo ss o f so m e $ 650 millio n. 5 W hen it w as a ll o ver, C EO M an oogia n a d m itte d , “ T he d ecis io n to go in to th e hom e fu rn is h in gs busin ess w as pro bab ly one of th e w ors t decis io ns I ’v e m ad e i n 3 5 y ears .” 6 It’ s a s o berin g m om en t i n t h e c la ssro om . T he e x ecu tiv es t h ere d id n’t i n te n d to o pen th eir c are ers a t th e H arv ard B usin ess S ch ool b y lo sin g h undre d s o f millio ns o f d olla rs t h eir f ir s t m orn in g. So, le t m e a sk y ou a g ain , a s I d o th e m an ag ers in m y c la ss: “ A re y ou th e str a te g is t y our b usin ess n eed s? ” Chap te r 3 The M yth o f t h e S uper-M an ag er A S A S T R A TEG IS T , w hat c an y ou le arn f ro m M asc o ’s f o ra y in to f u rn itu re a n d t h e s u pport m ost e x ecu tiv es g iv e t h at i ll- fa te d d ecis io n? Even if y ou w ere u ndecid ed o r s k ep tic al a b out th e fu rn itu re in dustr y , I’m w illin g to bet th at so m e part of you su pporte d M asc o ’s m ove. N o one r e sp ects tim id , passiv e m an ag ers . B old , vis io nary le ad ers w ho hav e th e c o nfid en ce to ta k e th eir f ir m s in e x citin g n ew d ir e ctio ns a re w id ely a d m ir e d . I s n ’t t h at a k ey p art o f s tr a te g y a n d l e ad ers h ip ? In tr u th , it is . B ut th e c o nfid en ce e v ery g ood s tr a te g is t n eed s c an re ad ily b allo on in to o verc o nfid en ce. A b elie f th at is u nsp oken b ut im plie d in m uch m an ag em en t th in kin g a n d w ritin g to day is th at a h ig hly c o m pete n t m an ag er c an p ro duce s u ccess i n v ir tu ally a n y s itu atio n. O ne w rite r c alls t h is “ th e s e n se o f o m nip ote n ce th at p la g ues A m eric an m an ag em en t, th e b elie f th at n o e v en t o r situ atio n is to o co m ple x or to o unpre d ic ta b le to be bro ught under m an ag em en t c o ntr o l.” 1 I c all t h is b elie f, w hen t a k en t o i ts e x tr e m e, t h e m yth o f t h e s u per-m an ag er. I t se em s to co m e natu ra lly to m an y su ccessfu l en tr e p re n eu rs an d se n io r m an ag ers w ho s e e th em se lv es a s a ctio n-o rie n te d p ro ble m s o lv ers , c o nfid en t d oers fo r w hom d if fic u ltie s are d au ntin g b ut so lv ab le ch alle n ges. I se e it b eh in d M asc o ’s le ap in to fu rn itu re m an ufa ctu rin g an d b eh in d ex ecu tiv es’ c h oic e o f th e s a m e p ath e v ery tim e I te ach th e c ase . C onfid en ce m atte rs . B ut t h ere ’s m uch m ore to str a te g y a n d le ad ers h ip th an a ste ad fa st b elie f th at a d arin g vis io n back ed by good m an ag em en t can overc o m e vir tu ally all o bsta cle s. W ith out t h e r e st o f i t, “ b old ” t o o o fte n b eco m es “ re ck le ss.” Look a t w hat s u ch th in kin g d id to M asc o . O pera tin g p ro fita b ility d ro pped t o h alf i ts h is to ric al a v era g e, a n d t h e f ir m ’s s to ck p ric e w as l o w er w hen i t l e ft th e f u rn itu re in dustr y th an w hen it e n te re d te n y ears e arlie r. A nd m oney w as only p art o f t h e c o st. W here W all S tr e et h ad s p oken o f M asc o a s a “ M aste r o f th e M undan e,” it b eg an to s p eak o f th e c o m pan y’s “ p ast g lo ry ” a n d “ b itte r sh are h old ers .” 2 T he co m pan y lo st m om en tu m as its le ad ers sp en t years dis tr a cte d b y a m assiv e v en tu re t h at u ltim ate ly f a ile d . For M asc o , its m ove in to fu rn itu re w as a d efin in g m om en t, b ut n ot a positiv e o ne. A le g acy b uilt o ver d ecad es w as s h atte re d , a n a ffir m atio n o f a well- k now n W arre n B uffe tt m ax im : “It ta k es tw en ty years to build a re p uta tio n a n d f iv e m in ute s to r u in it.” A ll b ecau se th e s tr a te g is t g ot th is o ne ch oic e w ro ng. What h ap pen ed ? Your in stin ct, lik e m ost m an ag ers ’, is p ro bab ly to se ek th e an sw er b y lo okin g a t M asc o its e lf a n d its le ad ers . S ure ly , th e u ltim ate fa u lt lie s th ere . But t o g et t h e f u ll p ic tu re , y ou m ust l o ok a s m uch o uts id e a s i n sid e t h e f ir m . Here i s a f ir s t c lu e. As o ur fa cu lty te am w as p re p arin g to te ach th e c ase fo r th e fir s t tim e, a co lle ag ue, th e m ost se n io r in th e ro om , sa id , “W ait a m in ute . T his sto ry so unds v ery f a m ilia r.” H e le ft th e m eetin g a n d w en t b ack to h is o ffic e f ile s. There h e fo und “M en gel C om pan y (A ),” a case so o ld it w as ty ped o n onio nsk in p ap er. Set i n 1 946, t h e M en gel c ase d esc rib es t h e f ir m ’s p la n s t o r e v olu tio niz e t h e hig hly fra g m en te d fu rn itu re in dustr y . M en gel’ s b old id ea? B uild s c ale , g ain effic ie n cie s by le v era g in g its m an ufa ctu rin g sk ills , an d esta b lis h bra n d id en tity . T o d o th is , it w ould b u ck in dustr y p ra ctic e a n d s p en d $ 500,0 00 o n natio nal ad vertis in g to “m ak e th e av era g e co nsu m er sty le -c o nsc io us” an d build its “ P erm an iz ed ” b ra n d n am e. 3 I h ad n ev er h eard o f M en gel, b ut w ith an e erie s e n se o f d éjà v u, I w ondere d if M asc o ’s le ad ers h ad k now n a b out th em . My o w n re se arc h in th e in dustr y le d to th e fo llo w in g lis t. W hat d o y ou th in k t h ese s e em in gly d is p ara te c o m pan ie s h av e i n c o m mon? Con so lid ate d F ood s Cham pio n I n te rn atio n al Mea d Gen era l H ou se w ares Ludlo w In te rm ark Geo rg ia P acif ic Bea tr ic e F ood s Sco tt P ap er Burlin gto n I n dustr ie s Gulf + W este rn Lik e M en gel a n d M asc o , th ese a re a ll c o m pan ie s th at tr ie d a n d fa ile d to fin d f o rtu ne i n f u rn itu re m an ufa ctu rin g. Most w ere r e g ard ed a s w ell- ru n c o m pan ie s. L ik e M asc o , th ey c o nsid ere d a fra g m en te d , c h ao tic i n dustr y t o b e a n o pportu nity f o r g ood m an ag ers t o a p ply th eir sk ills . W ith gre at ex pecta tio ns an d hig h hopes of su ccess, th ey all ju m ped i n w ith t h e i n te n tio n o f r e sh ap in g t h e i n dustr y t h ro ugh t h e i n fu sio n o f “p ro fe ssio nal m an ag em en t.” Y ears l a te r, t h ey a ll l e ft. UNDER ST A NDIN G T H E F O RCES Most e x ecu tiv es f in d th is lis t b oth r e v ealin g a n d d is c o ncertin g. T hese w ere co m pan ie s w ith c o nsid era b le tr a ck re co rd s, y et th ey a ll fa ile d in th e sa m e en deav or. W as th ere s o m eth in g p ro ble m atic a b out th e e n deav or its e lf ? W as so m eth in g a t w ork in th e fu rn itu re in dustr y th at w as o uts id e th e c o ntr o l o f th ese c o m pan ie s a n d t h eir l e ad ers ? Here ’s a n oth er c lu e. Look a t th e c h art o n R ela tiv e In dustr y P ro fita b ility . It s h ow s th e a v era g e re tu rn o n e q uity f o r tw en ty in dustr ie s o ver th e tw en ty -y ear p erio d f ro m 1 990 to 2 010. T he c h art w as c o m pile d fro m S ta n dard & P oor’s a n d C om pusta t data b ase s th at in clu de data on all co m pan ie s th at tr a d ed on U .S . sto ck ex ch an ges. Are y ou s u rp ris e d b y h ow m uch p ro fita b ility v arie s b y in dustr y ? C om pare Tobacco c o m pan ie s a t 3 6.1 p erc en t avera ge a nnual r e tu rn o n e q uity — whic h mean s le ad in g fir m s in th e in dustr y d o ev en b ette r— with A ir lin es at -1 0 perc en t o r C om merc ia l E quip m en t a t – 2 p erc en t. In m y ex perie n ce, m ost ex ecu tiv es u nders ta n d th at av era g e p ro fita b ility will d if fe r f ro m i n dustr y t o i n dustr y , b ut t h e s c ale o f v aria tio n o fte n c o m es a s a s u rp ris e . A nnual a v era g e re tu rn s in th e m ost p ro fita b le in dustr ie s a re w ell more t h an d ouble t h ose i n m ed ia n i n dustr ie s, a n d m ore t h an f o ur o r f iv e t im es th ose at th e botto m of th e dis tr ib utio n. R ese arc h ers hav e fo und sim ila r dif fe re n ces i n o th er c o untr ie s, i n b oth a d van ced a n d e m erg in g e co nom ie s. 4 Are th ese v ast d if fe re n ces fro m in dustr y to in dustr y cau se d b y ra n dom varia tio n? I t’ s n ot l ik ely — th ey ’re t o o l a rg e a n d t o o c o nsis te n t. D o s o m e t y pes of b usin esse s attr a ct g re at m an ag ers w hile o th ers attr a ct o nly p oor o nes? Som etim es, b ut n ot e n ough t o a cco unt f o r t h e d if fe re n ces. In fa ct, th ese v aria tio ns a re c au se d b y e co nom ic fo rc es th at sh ap e e ach in dustr y ’s c o m petitiv e la n dsc ap e d if fe re n tly . 5 A s M ic h ael P orte r h as s h ow n, so m e o f th ese r e la te to th e n atu re o f r iv alr y w ith in th e in dustr y its e lf ; o th ers hav e to d o w ith th e b ala n ce o f p ow er b etw een th e in dustr y a n d its s u pplie rs an d c u sto m ers , su bstitu te p ro ducts , a n d p ote n tia l n ew e n tr a n ts . S om etim es th e fo rc es a re fie rc e a n d le ad to lo w le v els o f in dustr y p ro fita b ility ; o th er tim es th ey ’re re la tiv ely b en ig n a n d se t th e sc en e fo r m uch m ore p ro fita b le outc o m es. The co lle ctiv e im pact o f th ese fo rc es o n th e p ro fita b ility o f in div id ual fir m s, a n d, in tu rn , o n in dustr ie s in w hic h th ey o pera te , is c alle d th e in dustr y effe ct. Y ou m ay b e s u rp ris e d to le arn th at s o m e a n d p erh ap s m uch o f y our co m pan y’s p erfo rm an ce i s d ete rm in ed b y s u ch f o rc es. 6 These co m petitiv e fo rc es are bey ond th e co ntr o l of m ost in div id ual co m pan ie s a n d th eir m an ag ers . T hey ’re w hat y ou in herit, a re ality th at y ou hav e to d eal w ith . It’ s n ot th at a fir m c an n ev er c h an ge th em , b ut in m ost case s it’ s v ery d if fic u lt to d o. T he s tr a te g is t’ s f ir s t jo b is to u nders ta n d th em an d h ow t h ey a ffe ct t h e p la y in g f ie ld w here c o m petitio n t a k es p la ce. MAK IN G T H E D IS T IN CTIO NS As su ggeste d by th e ab ove ch art, in dustr ie s can be arra y ed alo ng a co ntin uum ex te n din g fro m “U nattr a ctiv e” to “A ttr a ctiv e,” where attr a ctiv en ess re fe rs to th e deg re e to w hic h in dustr y co m petitiv e fo rc es re str ic t, a llo w , o r e v en f o ste r f ir m p ro fita b ility . T he ta b le b elo w id en tif ie s th e most im porta n t of th ese eco nom ic fo rc es an d ch ara cte riz es w hat th ey pro bab ly w ould b e l ik e i n i n dustr ie s a t t h e b ounds o f s u ch a c o ntin uum . 7 Unattr a ctiv e………. …………t o A ttr a ctiv e Hig h . M an y h om ogen eo us c o m petito rs an d h om ogen eo us p ro ducts . I n novatio ns quic k ly c o pie d . S lo w g ro w th . E xcess cap acity . P ric e c o m petitio n. Riv alr y a m on g f ir m s Low . O ne o r a f e w d om in an t, dif fe re n tia te d p la y ers . U niq ue pro ducts . S tr o ng b ra n d id en titie s. R ap id i n dustr y gro w th . S horta g e o f c ap acity . Hig h . I n dustr y i s d ep en den t o n a f e w , co ncen tr a te d s u pplie rs p ro ducin g u niq ue pro ducts , a n d I n dustr y i s n ot i m porta n t so urc e o f p ro fita b ility t o s u pplie rs . Pow er o f s u pplie rs Low . M an y s u pplie rs pro ducin g h om ogen eo us pro ducts . P ric e c o m petitio n an d p le n tif u l s u pply m ak e i t easy t o p ro cu re s u pplie s a t re aso nab le c o st. Hig h . C usto m ers h av e l o ts o f c h oic e am ong s im ila r p ro ducts . L ow l e v els o f bra n d a w are n ess. L ow s w itc h in g c o sts . Low l e v els o f e m otio nal i n volv em en t Pow er o f c u sto m ers Low . P ro ducts a re s c arc e, hig hly d if fe re n tia te d , a n d im porta n t t o c u sto m ers ’ w ell- bein g. C usto m ers h av e with p urc h ase . lim ite d c h oic e. B ra n ds a re str o ng. Low . I n dustr y i s e asy t o e n te r a n d so m etim es d if fic u lt t o e x it, c re atin g ex cess c ap acity . S tr a te g ie s o f e x is tin g co m petito rs c an b e e asily r e p lic ate d o r su rp asse d . E ntr y r e q uir e s l o w l e v els o f cap ita l, m odest s c ale , a n d n o s c arc e o r sp ecia liz ed r e so urc es. Barrie rs t o e n tr y a n d e x it Hig h . I t i s d if fic u lt o r n ot eco nom ic al f o r n ew f ir m s t o en te r y our i n dustr y . E ntr y re q uir e s e co nom ie s o f s c ale , pro duct d if fe re n tia tio n, h ig h cap ita l i n vestm en t, r e g ula to ry ap pro val, o r a ccu m ula tio n o f sp ecia l e x pertis e o r ex perie n ce. Hig h . W id e v arie ty o f c o m pellin g su bstitu te p ro ducts a re a v aila b le t h at meet c u sto m ers ’ n eed s a t a ttr a ctiv e re la tiv e p ric es. Availa b ilit y o f s u bstit u te pro d ucts Low . C usto m ers h av e f e w o r no c h oic es o f a lte rn ativ e pro ducts t h at c o uld m eet t h eir need s a t c o m para b le p ric es. Note how clo se ly m an y of th e co m petitiv e co nditio ns in fu rn itu re man ufa ctu rin g m ir ro r t h ose i n t h e l e ft- h an d “ U nattr a ctiv e” c o lu m n. • R iv alr y a m ong fu rn itu re fir m s is in te n se , a s s h ow n b y th e h ig h n um ber o f fir m s m ak in g sim ila r fu rn itu re an d by th e ab ility of fir m s to co py in novatio ns m ad e b y c o m petito rs . • S upplie rs to th e fu rn itu re in dustr y , su ch a s te x tile m ak ers , d om in ate th e ven dor r e la tio nsh ip b ecau se n o f u rn itu re c o m pan y b uys e n ough t e x tile s t o b e an i m porta n t c u sto m er. • C usto m ers in th e in dustr y are p ow erfu l b ecau se fu rn itu re p urc h ase s are hig hly postp onab le , pro ducts are lo ng-liv ed an d co m modity -lik e, an d cu sto m ers a re n ot b ra n d s e n sitiv e. • E ntr y b arrie rs a re lo w , m ean in g th at n ew f ir m s c an f lo od in a n d p ull d ow n pric es i f i n dustr y c o nditio ns e v er b eco m e m ore a ttr a ctiv e. O n t h e o th er h an d, th e i n dustr y c an b e d if fic u lt t o e x it, e sp ecia lly f o r t h e m an y f a m ily f ir m s t h at hav e fe w alte rn ativ e optio ns, m ak in g ex cess cap acity slo w to le av e th e in dustr y . • S ubstitu te p ro ducts a b ound. N ew f u rn itu re m ust c o m pete f o r t h e c u sto m er’s dolla r w ith co untle ss alte rn ativ es— in clu din g use d fu rn itu re or han d-m e- dow n fu rn itu re p asse d fro m u se r to u se r. S in ce m an y c u sto m ers c o nsid er fu rn itu re a d is c re tio nary p urc h ase , it m ust a ls o c o m pete w ith a p le th ora o f pro ducts su ch as te le v is io ns an d so und sy ste m s th at cu sto m ers are m ore ex cite d a b out a n d c o nsid er t o b e a b ette r v alu e f o r t h eir d is c re tio nary d olla rs . Even w hen fu rn itu re p ric es la g ged in cre ase s in th e c o nsu m er p ric e in dex , sa le s d id n ot r e sp ond. How d o y ou r e act t o t h e e x is te n ce o f t h ese f o rc es? It is n ’t a h ap py le sso n f o r m an y e x ecu tiv es I te ach . I t s e em s to s a y , “ Y our pro sp ects a re p re d ete rm in ed — th e g am e i s u p— or, i f n ot u p, a b ig c h unk o f i t is o ut o f y our c o ntr o l.” A ctio n-o rie n te d e x ecu tiv es, I f in d, p re fe r n ot to th in k of th em se lv es a s in th e g rip o f o uts id e f o rc es. T hey p re fe r to b elie v e in f re e will, n ot d ete rm in is m . T he p ossib ility th at th eir in dustr ie s m ig ht d riv e o r heav ily in flu en ce th eir o w n p erfo rm an ce is n ’t n ear th e to p o f th eir m in ds. A s pro activ e le ad ers a n d b elie v ers in th e p ow er o f m an ag em en t, th ey te n d to fo cu s o n w hat th ey c an c o ntr o l, w hile ig norin g o r u ndere stim atin g w hat th ey can not. REJE C TIN G T H E M YTH Iro nic ally , th e m ost s u ccessfu l a n d a d m ir e d le ad ers , th e tita n s o f b usin ess, unders ta n d th e pro fo und sig nif ic an ce of co m petitiv e fo rc es outs id e th eir co ntr o l. T hey k now th e c ru cia l im porta n ce o f p ic k in g th e r ig ht p la y in g f ie ld . They d on’t b uy th e m an ag em en t m yth th at a tr u ly g ood m an ag er c an p re v ail re g ard le ss o f t h e c ir c u m sta n ces. Look a t J a ck W elc h , Fortu ne m ag azin e’s “ M an ag er o f th e C en tu ry .” Y ou pro bab ly d on’t re m em ber th at w hen h e to ok o ver G en era l E le ctr ic , W elc h so ld o ff m ore th an 2 00 b usin esse s w orth m ore th an $ 11 b illio n a n d u se d th at money to m ak e m ore th an 370 acq uis itio ns. W hy? H e w an te d out of in dustr ie s w here c o nditio ns w ere to o n eg ativ e, w here h e th ought it w ould b e to o h ard fo r G E to flo uris h . “ I d id n’t lik e th e se m ic o nducto r b usin ess,” h e sa id . “ I th ought it w as to o c y clic al a n d it re q uir e d to o m uch c ap ita l. T here were s o m e v ery b ig p la y ers i n i t a n d o nly o ne o r t w o w ere m ak in g a n y m oney on a s u sta in ed b asis . . . . [ E xitin g th at b usin ess] a llo w ed u s to p ut o ur m oney in to th in gs lik e m ed ic al e q uip m en t, p ow er g en era tio n, a ll k in ds o f in dustr ie s where w e c h an ged t h e g am e. . . .” 8 A c o m men t fro m th e S ag e o f O m ah a h im se lf , W arre n B uffe tt, c ap s th e poin t: When a m anagem en t w ith a r e p uta tio n fo r b rillia nce ta ckle s a b usin ess with a r e p uta tio n fo r b ad e co nom ic s, it is th e r e p uta tio n o f th e b usin ess th at r e m ain s i n ta ct. 9 Buffe tt a n d W elc h , t w o o f t h e s tr o ngest m an ag ers o n r e co rd , r e co gniz e t h at in dustr y m atte rs a lo t. T hey u nders ta n d th at a s ig nif ic an t m easu re o f a f ir m ’s su ccess d ep en ds o n c o m petitiv e f o rc es b ey ond a m an ag er’s c o ntr o l, a n d th ey use th at k now le d ge to th eir o w n a d van ta g e— by p ic k in g p la y in g f ie ld s w here th ey c an w in a n d, w ith in t h ose f ie ld s, c are fu lly p ositio nin g t h eir b usin esse s t o work w ith , n ot a g ain st, t h e f o rc es. BU T W HAT A BO UT . . . ? Desp ite su ch c o unse l, th e m yth o f th e su per-m an ag er liv es o n fo r m an y ex ecu tiv es. It’ s re in fo rc ed in p ra ctic e ju st o fte n e n ough to g iv e it c re d en ce. Som etim es, e v en in th e to ughest lin es o f b usin ess, th ere is a p la n th at w ork s. In div id ual fir m s on occasio n hav e not only ach ie v ed gre at su ccess in in dustr ie s w here m ost o th ers h av e f a ile d , b ut th ey ’v e e v en c h an ged th e b asic co m petitiv e c o nte x t o f t h e i n dustr ie s. Such s to rie s r e ceiv e in ord in ate a tte n tio n in b usin ess b ooks a n d m ed ia , a n d ex ecu tiv es a re a lw ay s q uic k to b rin g th em u p: S ta rb uck s’s re v olu tio n in th e co ffe e h ouse b usin ess. S outh w est’ s tr iu m phs in d is c o unt a ir lin es. C ir q ue d u Sole il’ s re in ven tio n o f th e c ir c u s b usin ess. E ven M asc o ’s c o up in fa u cets . Yes, i t d oes h ap pen . But n one o f th ese s tr a te g ie s a p peare d o ut o f th e b lu e fro m th e u nfe tte re d min ds o f su per-m an ag ers . T hey cam e fro m a d eep co m pre h en sio n o f th e in dustr ie s in volv ed an d th e co nditio ns at w ork in th em . T he fo unders o f South w est d is c o vere d a w ay to e x plo it a h ole in th e f a re a n d r o ute s tr u ctu re s of e sta b lis h ed c o m petito rs . S ta rb uck s s u cceed ed n ot s im ply b y b re w in g b ette r co ffe e an d cre atin g an attr a ctiv e co ffe e h ouse ex perie n ce, b ut b y g ain in g sc ale an d build in g th e uniq ue co rp ora te sk ills need ed to re p lic ate th at ex perie n ce n ot t e n s o r h undre d s b ut t h ousa n ds o f t im es. The fo unders o f C ir q ue d u S ole il, p erfo rm ers th em se lv es, u nders to od th e esse n ce o f th e tr a d itio nal c ir c u s— th at it w as f o cu se d o n c h ild re n a n d th at its eco nom ic s w ere b ad ly s tr a in ed b y th e e x pen se o f tr a n sp ortin g a n d c arin g f o r la rg e, w ild a n im als . B y fo cu sin g o n a n adult a u die n ce, w hic h le t th em d ro p man y o f t h e a n im al a cts , t h ey s k illf u lly p ositio ned t h em se lv es t o a v oid o ne o f th e in dustr y ’s g re ate st d ra in s o n p ro fits w hile ta rg etin g c u sto m ers w ith th e hig hest w illin gness to p ay . 10 T hat’ s n ot a cav alie r d is re g ard fo r in dustr y fo rc es: I t’ s s u rg ic al p re cis io n. Look, to o, at W arre n B uffe tt’ s p ortf o lio . M ost p eo ple d on’t k now h e’s mad e s ig nif ic an t in vestm en ts in f u rn itu re . L ik e M asc o , h e a ls o s a w p ote n tia l in th e in dustr y . B ut B uffe tt ch ose to in vest in fu rn itu re re ta ilin g, not man ufa ctu rin g, an d b ought se v era l su ccessfu l fu rn itu re se lle rs aro und th e Unite d S ta te s. H e se em s to b e ex perim en tin g to se e if th ese d ow nstr e am re ta ile rs c an b en efit fro m th e in te n se ly c o m petitiv e c o nditio ns u pstr e am in fu rn itu re m an ufa ctu rin g— th e very co nditio ns th at bro ught dow n M asc o , Men gel, a n d a ll th e o th ers . In th e lo ng ru n, th ese m ay n ot tu rn o ut to b e Buffe tt’ s m ost b rillia n t v en tu re s, b ut th ey re v eal a re al s tr a te g is t p la y in g h is card s c are fu lly w ith a d eep a p pre cia tio n o f t h e f o rc es a t w ork i n t h e i n dustr y . No o ne c an s a y th at th e d ecis io n to e n te r o r re m ain in a to ugh in dustr y is rig ht o r w ro ng o n th e f a ce o f it. R em ak in g a d if fic u lt b usin ess, a s M asc o s e t out to d o, is n ’t e asy , b ut a s w e’v e s e en , it c an a n d h as b een d one. W hen it work s, th ough, it’ s a lw ay s a tw o-s id ed a ffa ir : I t in volv es a n in dustr y , o r p art of a n i n dustr y , t h at c an b e c h an ged a n d a f ir m w ith a v ia b le w ay t o d o s o . TH E M IS SIN G I N FO RM ATIO N What d oes a ll t h is t e ll y ou a b out M asc o a n d i ts f a ile d f u rn itu re v en tu re ? For th e f u ll a n sw er, w e m ust lo ok m ore c lo se ly a t M asc o ’s a ctio ns a n d a t how m ost o f m y s tu den ts — peo ple m uch lik e y ou, I s u sp ect— sa w o nly th e upsid e p ote n tia l o f t h e o pportu nity . Afte r a c la ss h as v ote d fo r M asc o to e n te r fu rn itu re m an ufa ctu rin g (a n d th ey a lw ay s d o), I a sk th e str o ngest p ro ponen ts o f th e m ove h ow th e fir m sh ould p ro ceed . W hat sp ecif ic a ctio ns sh ould M asc o ’s m an ag ers ta k e th at will c au se i t t o p erfo rm a b ove t h e a v era g e i n i ts n ew l in e o f b usin ess? Alo ngsid e th e b old d ecis io n to e n te r, th e p ro ponen ts ’ p la n s u su ally lo ok su rp ris in gly la ck lu ste r. N early a ll o f th em s ta rt w ith “ M asc o s h ould a cq uir e . . .” a n d g o o n to a d d s o m e g ra n d b ut v ag ue s ta te m en ts a b out ra tio naliz in g pro ductio n, im pro vin g effic ie n cy , le v era g in g th e co m pan y’s pro fe ssio nal man ag em en t, u sin g “ p ow er m ark etin g,” a n d so o n. W hen I w an t to k now what th e co m pan y w ould d o d if fe re n tly , h ow “p ro fe ssio nal m an ag em en t” would w ork h ere , o r w hat w ould s e t th e f ir m a p art f ro m o th ers , th e a n sw ers get p ro gre ssiv ely v ag ue a n d s u perfic ia l. T hey h av en ’t t h ought a b out a ll t h at. What b eco m es c le ar is th at th eir a rg um en ts a re p ro pelle d b y a n e n th usia sm fo r th e co m pan y its e lf , fo r w hat it’ s ach ie v ed in th e past, an d fo r th e sto re h ouse o f c ap ab ilitie s it c o uld b rin g to a n ew v en tu re . W hat is m is sin g is a s p ecif ic p la n t h at s h ow s w hy a ll o f t h at w ill m atte r i n t h is i n dustr y , a n d h ow it w ill n eu tr a liz e t h e l o ng-liv ed f o rc es t h at h av e b ro ken s o m an y o th er f ir m s. These d is c u ssio ns a lw ay s re m in d m e o f h ow F re n ch g en era ls a fte r W orld War I re sp onded to th e fa ct th at, in th e p re v io us h alf c en tu ry , G erm an y h ad tw ic e d efe ate d F re n ch a rm ie s. T he g en era ls t o ok a n um ber o f s te p s, i n clu din g co nstr u ctio n o f th e n ow -in fa m ous M ag in ot L in e, b ut a k ey r e aso n, th ey s a id , th at F ra n ce w ould n ot b e d efe ate d a g ain w as th e é la n v ita l o f th e F re n ch so ld ie r. Éla n v ita l m ean s “ v ita l sp ir it” a n d th e g is t o f F re n ch th in kin g w as th at th e s u perio r d ete rm in atio n o r a ttitu de o f th e F re n ch a rm y w ould d efe at whate v er t h e G erm an s t h re w a t i t. O f c o urs e , w e k now h ow w ell t h at w ork ed . It w as t h e m ilita ry e q uiv ale n t o f t h e m yth o f t h e s u per-m an ag er. Masc o ’s v ita l sp ir it w asn ’t e n ough, e ith er. Its le ad ers h oped its su perio r man ag em en t a n d m an ufa ctu rin g s k ills w ould l e ad i t t o v ic to ry o n a n ew f ro nt, an d th at th e s a m e s tr a te g y th at h ad b ro ught it g re at s u ccess in f a u cets w ould do th e s a m e in f u rn itu re . B ut, w hile s im ila r in s o m e w ay s, th e tw o in dustr ie s were d if fe re n t i n o th er w ay s t h at M asc o e ith er f a ile d t o n otic e o r a p pre cia te . Masc o ’s purc h ase s of fu rn itu re co m pan ie s at th re e pric e poin ts — lo w , mid dle , a n d h ig h— re fle cte d its b elie f th at sig nif ic an t sc o pe e co nom ie s, o r sa v in gs th at c o m e f ro m p ro ducin g a w id e r a n ge o f p ro ducts , w ere p ossib le in fu rn itu re . T hat a p pro ach h ad w ork ed in fa u cets , w here a ra n ge o f p ro ducts co uld b e m ad e in th e s a m e f a cto ry , s o ld th ro ugh th e s a m e c h an nels , in sta lle d by th e sa m e p lu m ber, an d o fte n b ought b y th e sa m e cu sto m er fo r u se in dif fe re n t lo catio ns in a house . In fu rn itu re , how ev er, m an ufa ctu rin g, dis tr ib utio n, r e ta ilin g, a n d c u sto m ers d if fe r d ra m atic ally f ro m th e to p e n d o f th e m ark et to th e b otto m , m ak in g sc o pe e co nom ie s m uch m ore d if fic u lt to ach ie v e. D is c o unt fu rn itu re is m ass-p ro duced an d m ass-m ark ete d , w hile ex pen siv e fu rn itu re is la rg ely h an dm ad e an d d is tr ib ute d th ro ugh sp ecia lty re ta il sh ops. F ew cu sto m ers buy fu rn itu re at both en ds of th e pric e an d quality sp ectr u m , an d th e pro ducts are alm ost nev er fo und at th e sa m e re ta ile r. Sim ila rly , sc ale e co nom ie s w ere d if fic u lt to c o m e b y in fu rn itu re . E ven afte r it p urc h ase d its w ay to m ark et le ad ers h ip , M asc o h eld o nly a p altr y 7 perc en t o f t h e m ark et, c o m pare d w ith i ts 3 0 p erc en t i n f a u cets . S ev en p erc en t was u nlik ely to c o nfe r m uch , if a n y, e co nom ic a d van ta g e, p artic u la rly w hen sp re ad acro ss so m an y sty le s, so m an y m an ufa ctu rin g pla n ts , so m an y ch an nels , a n d s o m an y p ric e p oin ts . Lik e o th er f u rn itu re m an ufa ctu re rs , M asc o ’s f o rtu nes w ere h in dere d b y th e in dustr y ’s ex tr e m e pro duct varie ty , hig h sh ip pin g co sts , an d cy clic ality , whic h in c o m bin atio n m ak e it e x tr a o rd in arily d if fic u lt to m an ag e a su pply ch ain e ffic ie n tly , o r p ro fita b ly s u bstitu te c ap ita l e q uip m en t f o r l a b or. W ith out a c o m pellin g w ay to a d dre ss th ese is su es, a m an ufa ctu re r w ill a lw ay s b e a t th eir m erc y . Above a ll, M asc o f a ile d t o l e arn t h e b ig gest l e sso n o f i ts s u ccess i n f a u cets . Its one-h an dle an d w ash erle ss pro ducts gav e it uniq ue ad van ta g es th at ad dre sse d im porta n t c u sto m er n eed s. E very th in g e ls e it d id in th at in dustr y flo w ed fro m th ose key dif fe re n ces. In a m ark et w here fu nctio nality w as cru cia l, M asc o h ad a d em onstr a b le p ro duct e d ge. In fu rn itu re , a n in dustr y ru le d m ore b y fa sh io n th an fu nctio n, M asc o h ad n o su ch c o re a d van ta g e, noth in g th at w as str o ng en ough to co unte r th e gra vita tio nal pull of th e in dustr y ’s u nattr a ctiv e c o m petitiv e f o rc es. Lik e t h ose F re n ch g en era ls , M asc o f a ile d t o a ccess i ts o w n b attle r e ad in ess. It pla ced unw arra n te d fa ith in its su perio r m an ag em en t éla n vita l and undere stim ate d th e fo rc es it w as u p a gain st. O ne e x ecu tiv e u se d a d if fe re n t but s im ila r m eta p hor to d esc rib e w hat th e c o m pan y d id : “ M asc o w alk ed in to a l io n’s d en a n d w as u npre p are d t o m eet a l io n.” TH E S T R ATEG IS T I N R EM ORSE Ric h ard M an oogia n , C EO -s tr a te g is t an d so n o f th e co m pan y’s fo under, to ok th e o utc o m e h ard . A t sta k e w asn ’t m ere ly a c o m pan y h e ra n b ut th e le g acy h is f a th er h ad c re ate d a n d p asse d o n t o h im . F ath er a n d s o n h ad s tr u ng to geth er th ir ty -o ne y ears o f c o nsis te n tly s u perio r p erfo rm an ce a n d c re ate d a su perb re p uta tio n o n W all S tr e et. A ll o f th at w en t u p in sm oke. In a sto ry title d , “ T he M asc o F ia sc o ,” Fin ancia l W orld o bse rv ed : “ T he M asc o C orp . was o nce o ne o f A m eric a’s m ost a d m ir e d c o m pan ie s; n ot a n ym ore .” T hough Man oogia n p ro m is e d to re tu rn th e c o m pan y to “ its p ast g lo ry ,” h e w ould hav e to re g ain th e tr u st o f h is s h are h old ers , m an y o f w hom fe lt “ stu ck in a nin e-y ear n ig htm are o f b ro ken p ro m is e s.” 11 It w as a case of th e overc o nfid en t str a te g is t. A lo ng w ith m an y oth er co m pan ie s th at tr ie d to cra ck th e fu rn itu re in dustr y , M asc o belie v ed a dis o rg an iz ed , c o m petitiv e, lo w -p ro fit b usin ess o ffe re d e asy p ro sp ects fo r a dis c ip lin ed , w ell- m an ag ed c o m pan y. B y s o m e p ro cess o f o ptim is tic th in kin g, su perfic ia l a n aly sis , a n d m is p la ced a n alo gy, s e rio us in dustr y p ro ble m s b eg an to l o ok l ik e g old en o pportu nitie s. The s a m e h opefu l t h in kin g r e ap pears e v ery t im e I t e ach t h e M asc o c ase . I n th eir in itia l an aly sis o f th e fu rn itu re b usin ess, m y stu den ts — all se aso ned ex ecu tiv es— duly n ote h ow u nattr a ctiv e it is . Y et w hen th e tim e c o m es to decid e w hat M asc o s h ould d o, th ey p re fe r to in te rp re t e v ery p ro ble m a s a n opportu nity (a n “in su rm ounta b le opportu nity ,” as so m e w ag once sa id ). Chao s, c y clic ality , f ra g m en ta tio n? G re at! N o d om in an t p la y er a n d lo w b ra n d re co gnitio n? W onderfu l! A dif fic u lt- to -m an ag e su pply ch ain w ith la rg e, ex pen siv e ite m s, a n d h uge v arie ty ? T errif ic ! S eem in gly , th ere w as n oth in g Masc o ’s re so urc es an d pro w ess co uld not overc o m e or tu rn to th eir ad van ta g e. I t i s t h e m yth o f t h e s u per-m an ag er i n f u ll f o rc e. I su sp ect M asc o fe ll in to th e sa m e tr a p . In th e fa ce o f d eep ly in gra in ed , lo ng-liv ed in dustr y pro ble m s, its le ad ers su ccu m bed to a co stly bout of ir ra tio nal f a ith i n t h e p ow er o f s u perio r m an ag em en t. TH E P O W ER O F R EA LIS M Do t h e l e sso ns o f M asc o r e so nate w ith y ou? More th an tw en ty y ears afte r th e M asc o fia sc o , m y stu den ts re p eate d ly ap pro ach m e to sa y , “M y in dustr y is ju st lik e th e fu rn itu re b usin ess! I’m work in g re ally h ard a n d g ettin g n ow here .” F or th em it’ s a e u re k a m om en t. The is su es th ey ’v e been battlin g su dden ly co m e in to fo cu s, an d th ey unders ta n d t h e l a rg er r e aso ns f o r t h eir s tr u ggle s. They , lik e W elc h , B uffe tt, an d o th er astu te b usin ess le ad ers , g ra sp th e le sso n of th e in dustr y effe ct an d its pro fo und im plic atio ns fo r fir m perfo rm an ce. T hey r e co gniz e t h at, a s i n t h e f a m ous s e re n ity p ra y er, y ou m ust accep t th e th in gs y ou c an not c h an ge, h av e th e c o ura g e to c h an ge th e th in gs you c an , a n d t h e w is d om t o k now t h e d if fe re n ce. I t’ s a l e sso n g re at s tr a te g is ts unders ta n d w ell, b ut i t’ s n ot a n e asy l e sso n t o a ccep t a n d m aste r. T he m yth o f th e s u per-m an ag er i s h ard t o l e t g o. The f u ndam en ta l le sso ns h ere a re s im ple b ut o f p ara m ount im porta n ce f o r th e s tr a te g is t. Fir s t, y ou m ust u nders ta n d th e c o m petitiv e fo rc es in y our in dustr y . H ow you re sp ond to th em is y our str a te g y. T hat m ean s if y ou d on’t u nders ta n d th em , y our s tr a te g y i s b ase d o n l u ck a n d h ope. Seco nd, e v en if y ou u nders ta n d y our in dustr y ’s c o m petitiv e fo rc es, y ou must f in d a w ay t o d eal w ith t h em t h at i s u p t o t h e c h alle n ge. T hat m ay m ean sk illf u l p ositio nin g, d elib era te e ffo rts to c o unte r n eg ativ e fo rc es o r e x plo it fa v ora b le o nes, o r e v en a tim ely e x it. B ut d on’t b e tr a p ped b y th e m yth in to belie v in g t h at y our s u perio r m an ag em en t s k ills w ill c arry y ou t o s u ccess. Thir d , w hate v er y ou d o, d on’t u ndere stim ate th e p ow er o f th ese fo rc es. Their im pact o n th e d estin y o f y our b usin ess m ay w ell b e a s g re at a s y our ow n. The s to ry y ou w ill w rite a s a s tr a te g is t w ill b e s e t a g ain st th e b ack dro p o f your in dustr y . I t m ust b e tr u e to its r e alitie s, w hile h av in g a d if fe re n ce th at’ s all i ts o w n. I t’ s t o t h e s e co nd o f t h ese c h alle n ges t h at w e n ow t u rn . Chap te r 4 Beg in w ith P urp ose W E’V E L EA RN ED S O M E p ain fu l le sso ns a b out th e c h alle n ges th at c o nfro nt s tr a te g is ts in th e fa ce o f u nattr a ctiv e in dustr y fo rc es. W ith th is ch ap te r, I b eg in m ap pin g th e p ath o ut o f th e w ild ern ess: s p ecif ic ally , e x pla in in g h ow s o m e a stu te s tr a te g is ts h av e m an ag ed to d is tin guis h th eir b usin esse s e v en in t h e f a ce o f s u ch h ead w in ds. The jo urn ey sta rts w ith an in div id ual: In gvar K am pra d , th e fo under o f I K EA w ho b y a ll a cco unts b uilt o ne o f th e w orld ’s g re ate st fo rtu nes. L ik e R ic h ard M an oogia n o f M asc o , K am pra d w as i n t h e f u rn itu re b usin ess, b ut h is s to ry c o uld n’t b e m ore d if fe re n t. I n 2 010, h is p riv ate ly h eld c o m pan y, w hic h h e s ta rte d in 1 943 a t th e a g e o f s e v en te en , h ad s a le s o f 2 3.1 b illio n e u ro , n et p ro fits o f 2 .5 b illio n e u ro , a n d g ro ss m arg in s o f 4 6 p erc en t. And th e n um bers d on’t e v en b eg in to c ap tu re IK EA ’s p ow erfu l h old o n c o nsu m ers . A s Busin essW eek p ut it, “ P erh ap s m ore th an a n y o th er c o m pan y i n th e w orld , IK EA h as b eco m e a c u ra to r o f p eo ple ’s lif e sty le s, if n ot th eir l iv es. IK EA W orld [is ] a sta te o f m in d th at re v olv es a ro und c o nte m pora ry d esig n, lo w pric es, wack y pro m otio ns, an d an en th usia sm th at fe w i n stitu tio ns i n o r o ut o f b usin ess c an m uste r.” 1 How d id K am pra d s u cceed w here M an oogia n f a ile d ? H e b uilt h is c o m pan y b y c re atin g w hat I lik e to c all a diffe re n ce th at m atte rs . ( T he f u ll m ean in g o f t h is p hra se w ill b eco m e c le ar a s t h e s to ry u nfo ld s.) H e d id s o , n ot b y i g norin g i n dustr y fo rc es, as M an oogia n d id , b ut b y cre atin g a co m pan y th at co uld t h riv e a n d a d d v alu e i n t h e m id st o f t h em . If y ou’re o ne o f t h e m illio ns w ho h av e s h opped a t I K EA , y ou’ll l ik ely h av e i n delib le m em orie s o f v ast, b rig ht, m odern s to re s d esig ned s o th at e n te rin g c u sto m ers fo llo w a w in din g path th ro ugh a huge build in g fille d w ith fu rn is h in gs a n d a g re at m is c ella n y o f h ouse w are s. W hen y ou c h ose a p ie ce o f fu rn itu re — a s im ple M ic k e d esk fo r 6 9 e u ro , o r a te n -p ers o n N ord en d in in g ta b le f o r 2 69 e u ro — you n ote d th e in fo rm atio n o n a n o rd er s lip , c o ntin ued o n th e p ath to a w are h ouse -lik e ro om , w re stle d a fla t b ox c o nta in in g th e ite m onto y our sh oppin g tr o lle y , c arte d it h om e o n th e ro ofto p o f y our c ar, a n d asse m ble d it y ours e lf . I f y ou b ro ught th e k id s, y ou m ay h av e p ark ed th em in th e o n-s ite c h ild c are c en te r; y ou m ay a ls o h av e s to pped a t th e re sta u ra n t to sa m ple t a sty a n d i n ex pen siv e f o od r a n gin g f ro m s a lm on t o S w ed is h m eatb alls an d lin gonberry ta rts . It’ s alm ost a th em e p ark : p ro bab ly n ot a cu sto m er ex perie n ce y ou’d re lis h if y ou’v e m ad e y our fo rtu ne, b ut w hen y ou w ere sta rtin g o ut, t h ere w as n oth in g t h at c o uld m atc h i t. RURAL R O OTS One co uld sa y th at In gvar K am pra d w as a natu ra l- b orn en tr e p re n eu r. “T ra d in g w as i n m y b lo od” h e t o ld h is b io gra p her, B ertil T ore k ull. 2 K am pra d was a b out fiv e w hen h is a u nt h elp ed h im b uy a h undre d b oxes o f m atc h es fro m a s to re i n S to ck holm t h at h e t h en s o ld i n div id ually a t a p ro fit i n h is r u ra l hom eto w n o f A gunnary d, d eep in th e fa rm la n d o f S m ala n d. S oon h e w as se llin g all so rts of merc h an dis e : Chris tm as card s, wall han gin gs, lin gonberrie s ( h e p ic k ed th em h im se lf ), f is h ( w hic h h e c au ght) , a n d m ore . A t ele v en , h e m ad e e n ough m oney to b uy a b ic y cle a n d ty pew rite r. “ F ro m th at tim e o n,” h e r e co unte d , “ se llin g t h in gs b ecam e s o m eth in g o f a n o bse ssio n.” 3 Befo re g oin g to th e S ch ool o f C om merc e in G oth en burg , K am pra d s ig ned th e p ap erw ork to s ta rt h is o w n tr a d in g f ir m , I K EA A gunnary d [ I f o r I n gvar, K f o r K am pra d , E f o r th e f a m ily f a rm E lm ta ry d, a n d A f o r A gunnary d]. T he mail- o rd er busin ess gre w to in clu de ev ery th in g fro m fo unta in pen s an d pic tu re fra m es to w atc h es a n d je w elr y . W ith a k een e y e fo r v alu e, K am pra d fe rre te d o ut th e lo w est- c o st s o urc es. F ru gality w as th e n orm in S m ala n d. Its fa rm ers , e k in g th eir liv in g f ro m a h ars h a n d s p are e n vir o nm en t, h ad to m ak e ev ery p en ny c o unt. Notic in g t h at h is t o ughest c o m petito r i n t h e c ata lo g b usin ess s o ld f u rn itu re , Kam pra d decid ed to ad d so m e to his offe rin gs, su pplie d by sm all lo cal fu rn itu re m ak ers . F urn itu re q uic k ly b ecam e th e b ig gest p art o f h is b usin ess; in th e p ostw ar b oom , S w ed es w ere b uyin g a lo t o f it. I n 1 951, a t a g e tw en ty – fiv e, h e d ro pped a ll h is o th er p ro ducts t o f o cu s e x clu siv ely o n f u rn itu re . Alm ost im med ia te ly h e fo und h im se lf in a cris is . G ro w in g co m petitio n fro m o th er m ail- o rd er fir m s le d to a p ric e w ar. A cro ss th e in dustr y , q uality dro pped as m erc h an ts an d m an ufa ctu re rs cu t co sts . C om pla in ts sta rte d to mount. “ T he m ail o rd er tr a d e w as ris k in g a n in cre asin gly b ad re p uta tio n,” Kam pra d s a id . 4 H e d id n’t w an t to jo in th e r a ce to th e b otto m , b ut h ow c o uld he p ers u ad e c u sto m ers t h at h is g oods w ere s o und w hen t h ey h ad o nly c ata lo g desc rip tio ns to re ly o n? H is an sw er: cre ate a sh ow ro om w here cu sto m ers co uld s e e th e m erc h an dis e fir s th an d. In 1 953 h e o pen ed o ne in a n o ld tw o- sto ry b uild in g. T he fu rn itu re w as o n th e g ro und flo or; u psta ir s w ere fre e co ffe e a n d b uns. O ver a th ousa n d p eo ple c am e to th e v illa g e f o r th e o pen in g, an d a g ra tif y in g n um ber w ro te o ut o rd ers . B y 1 955, I K EA w as s e n din g o ut a half a m illio n c ata lo gs a n d h ad s a le s o f 6 m illio n k ro na. Kam pra d u nders to od h is c u sto m ers o n a p ers o nal le v el. A s h e w ould la te r sa y , i n e x pla in in g I K EA ’s p hilo so phy, “ S in ce I K EA t u rn s t o t h e m an y p eo ple who a s a r u le h av e s m all r e so urc es, th e c o m pan y m ust b e n ot ju st c h eap , n or ju st ch eap er— but very m uch ch eap er . . . th e goods m ust be su ch th at ord in ary p eo ple c an e asily a n d q uic k ly i d en tif y t h e l o w ness o f t h e p ric e.” 5 By f o llo w in g th is p hilo so phy, K am pra d b ecam e a f o rc e to c o nte n d w ith in th e S w ed is h fu rn itu re in dustr y — an d, n ot lik in g h is lo w p ric es, th e in dustr y str u ck back . Sw ed en ’s N atio nal A sso cia tio n of Furn itu re D eale rs beg an pre ssu rin g s u pplie rs to b oyco tt h im a n d, w ith th e s u pport o f th e S to ck holm Cham ber o f C om merc e, b an ned h im f ro m tr a d e f a ir s . M an y o f th e s u pplie rs sto pped s e llin g to h im , a n d th ose th at c o ntin ued to d o b usin ess w ith IK EA re so rte d to clo ak -a n d-d ag ger man eu vers : se n din g goods to fic titio us ad dre sse s, d eliv erin g in u nm ark ed v an s, a n d c h an gin g th e d esig n o f p ro ducts so ld to I K EA s o th ey w ould n’t b e r e co gniz ed . S oon K am pra d w as s u ffe rin g th e h um ilia tio n o f n ot b ein g a b le t o d eliv er o n o rd ers . He co unte ra tta ck ed on se v era l fro nts — fo r ex am ple , he beg an pay in g su pplie rs w ith in te n d ay s, as o ppose d to th e sta n dard in dustr y p ra ctic e o f th re e o r fo ur m onth s, a n d h e sta rte d a flo ck o f little c o m pan ie s to a ct a s in te rm ed ia rie s. T hese m oves h elp ed , b ut IK EA w as g ro w in g ra p id ly an d su pplie s w ere s h ort. W ith out a r e lia b le s o urc e o f s u pply , K am pra d f e are d h is busin ess w ould b e d oom ed . Hav in g heard th at Pola n d’s co m munis t govern m en t w as hungry fo r eco nom ic d ev elo pm en t, K am pra d b eg an s c o urin g th e P olis h c o untr y sid e. H e fo und m an y e ag er a n d w illin g s m all m an ufa ctu re rs la b orin g in th e s h ad ow o f th e bure au cra cy . T heir pla n ts w ere an tiq uate d an d th e quality of th eir pro ducts w as dre ad fu l, so K am pra d lo cate d bette r-q uality (th ough use d ) mach in ery in S w ed en . H e a n d h is s ta ff m oved th e m ach in ery to P ola n d a n d in sta lle d it, work in g han d in han d with th e m an ufa ctu re rs to ra is e pro ductiv ity an d q uality . T he fu rn itu re th ey tu rn ed o ut en ded u p co stin g ab out h alf a s m uch a s S w ed is h -m ad e e q uiv ale n ts a n d K am pra d w as a b le to nail d ow n h is c o sts o n a h uge n ew s c ale . Thus th e b oyco tt tu rn ed o ut to b e w hat I c all a n “ in citin g in cid en t,” to borro w a p hra se f ro m s c re en w rite r R obert M cK ee— an e v en t th at p ro pelle d a critic al s tr a te g ic s h if t. 6 “ N ew p ro ble m s c re ate d a d iz zy in g c h an ce,” K am pra d sa id . “ W hen w e w ere n ot a llo w ed to b uy th e s a m e f u rn itu re o th ers w ere , w e were fo rc ed to d esig n o ur o w n, a n d th at c am e to p ro vid e u s w ith a s ty le o f our o w n, a d esig n o f o ur o w n. A nd fro m th e n ecessity to se cu re o ur o w n deliv erie s, a c h an ce a ro se th at in its tu rn o pen ed u p a w hole n ew w orld to us.” 7 To K am pra d , it w asn ’t e n ough to s im ply s o urc e in d ev elo pin g c o untr ie s. He a ls o b ro ught e x tr a o rd in ary d ete rm in atio n a n d im ag in atio n to h is d riv e f o r lo w er co sts . For ex am ple , he w asn ’t afra id to dra w on unco nven tio nal so urc es. H e tu rn ed th e jo b of m ak in g a partic u la r ta b le over to a sk i man ufa ctu re r, w ho co uld d eliv er it at an esp ecia lly lo w p ric e. H e b ought head board s fro m a d oor fa cto ry , a n d w ir e -fra m ed so fa s a n d ta b le s fro m a mak er o f sh oppin g c arts . IK EA w as a ls o a p io neer in b uild in g “ b oard -o n- fra m e f u rn itu re ,” c o m pris e d o f f in is h ed w ood o n a p artic le b oard c o re , w hic h is b oth c h eap er a n d l ig hte r t h an s o lid w ood. Then , o f c o urs e , th ere is th e ic o nic I K EA p ack ag in g— th e f a m ous f la t p ack with its do-it- y ours e lf asse m bly . W hile th e co m pan y did n’t in ven t th is ap pro ach , it w as th e f ir s t to g ra sp a n d s y ste m atic ally e x plo it its f u ll p ote n tia l. The fla t p ack p ro vid es h uge c o st s a v in gs b y m ak in g s h ip pin g, d is tr ib utio n, an d sto ra g e much more effic ie n t an d th us much ch eap er. It sa v es man ufa ctu rin g ste p s; it sa v es sh ip pin g c o sts fro m fa cto ry to sto re ; it sa v es sto ck in g a n d h an dlin g c o sts in th e s to re ; a n d it e lim in ate s d eliv ery c o sts fo r most c u sto m ers . IK EA o pen ed its f ir s t s to re in 1 958 in A lm hult. F iv e y ears la te r it o pen ed one in N orw ay , an d tw o years afte r th at, a se co nd Sw ed is h sto re in Sto ck holm . I t b ecam e a n asc en t g lo bal p la y er w ith o pen in gs i n S w itz erla n d i n 1973 a n d G erm an y in 1 974. It e n te re d th e U nite d S ta te s in 1 985, C hin a in 1998, R ussia in 2 000, a n d J a p an in 2 006. In 2 010, IK EA h ad 2 80 s to re s in tw en ty -s ix c o untr ie s, a n d s e rv ed 6 26 m illio n v is ito rs . 8 BEY O ND L O W P R IC ES So h ow d o y ou a cco unt f o r I K EA ’s s u ccess i n t h is t e rrib le i n dustr y ? Most l ik ely y our i m med ia te t h ought i s “ lo w p ric es, l o w p ric es, l o w p ric es.” In deed , I K EA ’s p ric es a re s o lo w th ey ’re n ot ju st a d if fe re n ce in d eg re e f ro m co m petito rs ’ b ut a d if fe re n ce i n k in d. Over th e p ast d ecad e, th e c o m pan y h as lo w ere d its p ric es b y 2 to 3 p erc en t a y ear o n a v era g e. E very a sp ect o f IK EA ’s o pera tio n is s u bje ct to o ngoin g sc ru tin y to se e w here fu rth er c o sts c an b e ta k en o ut. E ven fla t p ack s h av e been re p eate d ly re d esig ned to g ain sm all effic ie n cie s in th e u se o f sp ace. Kam pra d r e g ard ed th e c u sto m ary p erk s o f b usin ess le ad ers h ip a s w aste , to o. Sto rie s a re l e g en d o f h is f ly in g c o ach c la ss o r t a k in g a b us i n ste ad o f a t a x i o r lim ousin e. I t’ s a n a ttitu de t h at’ s b een a d opte d w hole h earte d ly b y o th ers i n t h e co m pan y w ho s p eak o f s p en din g m oney u nnecessa rily a s a “ d is e ase , a v ir u s th at e ats a w ay a t o th erw is e h ealth y c o m pan ie s.” 9 But IK EA is n ot a d olla r s to re : L ow p ric es d on’t b eg in to te ll th e w hole sto ry . S can din av ia n d esig n w as b eco m in g p opula r a ro und th e w orld in th e 1950s a n d it su ite d IK EA ’s str a te g y p erfe ctly . T he sim plic ity o f th e c le an lin es m ad e th e f u rn is h in gs p artic u la rly a p pealin g; it a ls o m ad e th em c h eap er to p ro duce th an m ore o rn ate d esig ns. K am pra d p ush ed th is e n velo pe f a rth er, hir in g fir s t- c la ss ta le n t w ho co uld desig n fo r both sty le an d fo r fru gal man ufa ctu rin g te ch niq ues. P erh ap s IK EA ’s g re ate st d esig n a ch ie v em en t h as been to m ak e its f u rn itu re lo ok a n d f e el m ore e x pen siv e th an it is . A tu rn in g poin t c am e in 1 964 w hen a r e sp ecte d S w ed is h f u rn itu re m ag azin e c o m pare d IK EA fu rn itu re w ith m ore h ig hly re g ard ed b ra n ds. IK EA ’s , it fo und, w as ofte n a s g ood o r b ette r. T hat sh ock ed th e in dustr y a n d h elp ed to p ers u ad e co nsu m ers th at th ey h ad n oth in g to lo se — eith er fin an cia lly o r in te rm s o f sta tu s— by s h oppin g a t I K EA . Unlik e s o m an y d is c o unt re ta il s to re s, IK EA ’s a re a n yth in g b ut d ark a n d din gy. T he c o m pan y’s v ib ra n t c o lo rs (m ostly b lu e a n d y ello w , th e c o lo rs o f th e S w ed is h fla g ) a re e v ery w here , a n d e x cep t fo r th e w eek en d c ro w ds, th e sto re s a re p le asa n t p la ces to v is it. Y ou c an m ak e a d ay o f it: C om e w ith th e fa m ily , tr y o ut th e so fa s, u se th e co m pute riz ed to ols to d esig n y our o w n kitc h en , a n d h av e a f u ll- fle d ged S w ed is h m eal a t th e r e sta u ra n t. I f, a t th e e n d of th e d ay , y ou’v e b ought to o m uch to lo ad o nto y our c ar, y ou c an re n t a n IK EA van to driv e it all hom e, or ev en pay to hav e th in gs deliv ere d , asse m ble d , a n d s e t u p. So, w hat is it th at is s p ecia l a b out IK EA ? I a sk y ou. L ow p ric e? D esig n? Fla t p ack ? S w ed is h m eatb alls ? W hat? T he a n sw er, o f c o urs e , is “ all o f th e ab ove.” T he c en te rp ie ce is lo w c o st— with out th at, n oth in g e ls e w ork s— but ev ery th in g els e not only su pports lo w co st but ad ds its ow n dis tin ctiv e attr a ctio n. At th is p oin t, y ou, lik e m an y m an ag ers , m ay f e el lik e, “ O kay , w e’re d one —we’v e c ra ck ed th e c ase . W e k now th e a n sw er, tim e to m ove o n.” M ay be so . B ut w hat is th e r e al le sso n h ere ? W hat d o y ou ta k e w ith y ou to a p ply to your co m pan y? T hat lo w co st w ith so m e ad ded dis tin ctiv e fe atu re s is a win nin g c o m bin atio n? Ofte n i t i s . But w hat if I te ll y ou th ere is a d eep er in sig ht h ere , a n in sig ht th at a p plie s to a ll b usin esse s w heth er y ou’v e d ecid ed to c o m pete o n lo w p ric e o r w ith dif fe re n tia te d , sp ecia lty pro ducts . It’ s so m eth in g els e th at w as beh in d every th in g I K EA d id . A C O NCEPT C O M PA NY If I n gvard K am pra d w ere h ere a n d w e a sk ed h im t o d esc rib e t h e e sse n ce o f what I K EA w as d oin g, w hat w ould h e s a y ? His o w n w ord s a re i n str u ctiv e: “ W e a re a c o ncep t c o m pan y.” H e g oes o n t o desc rib e th e id ea th at g uid es th e fir m . IK EA o ffe rs “a w id e r a nge o f w ell- desig ned , fu nctio nal h om e fu rn is h in g p ro ducts a t p ric es s o lo w th at a s m any peo ple a s p ossib le w ill b e a ble to a ffo rd th em .” T his s e rv es th e c o m pan y’s aim t o c re ate “a b ette r e very d ay l ife f o r t h e m any.” 10 These w ord s w ere n ’t sa id b y K am pra d o n ra re o ccasio ns. H e sa id th em ofte n , o ver a n d o ver. H e w ro te th em o ut, a n d m ore lik e th em , in s ta te m en ts an d b ookle ts h e p rin te d a n d d is tr ib ute d to e m plo yees. A ll n ew e m plo yees a re in doctr in ate d w ith th ese id eas, an d th ey ’re pro m in en t in th e co m pan y’s an nual r e p ort t o day . Alth ough IK EA calls th is sta te m en t its “co ncep t,” th e w ord I p re fe r is purp ose . Purp ose is th e w ay I K EA o r a n y o th er c o m pan y d esc rib es its e lf in th e m ost fu ndam en ta l te rm s possib le — why it ex is ts , th e uniq ue valu e it brin gs to th e w orld , w hat se ts it a p art, a n d w hy a n d to w hom it m atte rs . Notic e h ow I K EA ’s p urp ose a s e x pre sse d a b ove a n sw ers a ll t h ese q uestio ns. I s u sp ect, th ough, th at s o m e o f y ou, lik e s o m e E O Pers , a re le ery o f lo fty pro se . P erh ap s y ou c o nsid er K am pra d ’s w ord s m ostly P R f lu ff— fa n cy w ord s to d re ss u p a h ard -n ose d , c o st- c u ttin g a p pro ach . B ut th ese w ord s d on’t ju st “d re ss u p” lo w p ric es. O n th e co ntr a ry , th ey are w hat d riv e IK EA ’s lo w pric es a n d a ll t h e o th er f e atu re s t h at m ak e i t s ta n d o ut. To u nderlin e th e p oin t, co nsid er so m eth in g els e K am pra d w ro te in “A Furn itu re D eale r’s T esta m en t,” a d ocu m en t h e p re p are d to k eep th e g ro w in g co m pan y f o cu se d o n w hat i t w as a ll a b out: We h ave d ecid ed o nce a nd fo r a ll to s id e w ith th e m any. . . . T he m any usu ally h ave lim ite d fin ancia l r e so urc es. I t is th e m any w hom w e a im to se rv e. T he fir st r u le is to m ain ta in a n e xtr e m ely lo w le vel o f p ric es. B ut th ey m ust b e lo w p ric es w ith a m ea nin g. W e m ust n ot c o m pro m is e e ith er fu nctio nality o r t e ch nic a l q uality . 11 So i t w asn ’t l o w p ric es a lo ne t h at d ro ve I K EA . L ow p ric es w ere n ’t t h e g oal but r a th er a m ean s t o a n e n d: “ lo w p ric es w ith a m ean in g”— a b ette r e v ery day lif e f o r t h e m an y. What w as M asc o ’s p urp ose in f u rn itu re ? I t d id n’t r e ally h av e o ne, d id it— oth er th an a v ag ue b elie f th at it w ould h av e s o m e s o rt o f s c ale a d van ta g e a n d would b rin g p ro fe ssio nal m an ag em en t s k ills a n d c ap ab ilitie s to a n in dustr y th at so re ly la ck ed th em . In c o n tr a st, IK EA ’s c le ar a n d c o m pellin g p urp ose ad dre sse d a lo ng-liv ed m ark et n eed , c re ate d a d is tin ctiv e n ic h e, a n d m atte re d a l o t t o i ts c u sto m ers . As y ou m ull th e id ea o f c o rp ora te p urp ose , y ou m ay m ak e th e c o nnectio n to th e m ore f a m ilia r “ co m petitiv e a d van ta g e.” I n f a ct, th e te rm s purp ose a n d co m petitiv e a dva nta ge co uld b e u se d in co nju nctio n w ith each o th er, b ut co m petitiv e ad van ta g e pla ces th e fo cu s on a fir m ’s co m petitio n. T hat’ s im porta n t, b ut i t’ s n ot e n ough. L ead ers t o o o fte n t h in k th e h eart o f s tr a te g y i s beatin g th e c o m petitio n. N ot so . S tr a te g y is a b out se rv in g a n u nm et n eed , doin g so m eth in g uniq ue or uniq uely w ell fo r so m e se t of sta k eh old ers . Beatin g t h e c o m petitio n i s c ritic al, t o b e s u re , b ut i t’ s t h e r e su lt o f f in din g a n d fillin g t h at n eed , n ot t h e g oal. Consid er th e p ow er o f p urp ose a n d th e d if fe re n ces it s p aw ns a cro ss f ir m s. In th e la st ch ap te r w e lo oked at th e av era g e pro fita b ility of dif fe re n t in dustr ie s a s a w hole . W e tr e ate d e ach in dustr y a s if it w ere a s in gle e n tity , an d s h ow ed th e avera ge p ro fita b ility o f fir m s in e ach in dustr y , th e in dustr y effe ct. H ere w e co nsid er th e v aria tio n in p ro fita b ility with in an in dustr y , acro ss p la y ers . T his is th e fir m e ffe ct— th e d if fe re n ce b etw een a n in div id ual fir m ’s p ro fita b ility a n d th e a v era g e p ro fita b ility in its in dustr y . P ositiv e o r neg ativ e, l a rg e o r s m all, i t’ s t h e s u m o f t h e i m pact o f a ll a f ir m ’s a ctio ns. Fir m e ffe cts a re d ir e ctly tie d to th e w ork o f a s tr a te g is t, a n d o ver th e lo ng ru n a re o ne o f th e b est in dic ato rs o f s u ccess o r f a ilu re o n th e jo b. W ith in a n in dustr y , th ey c an v ary w id ely , e v en th ough m ost o f th e p la y ers w ork in a sim ila r c o nte x t a n d f a ce l a rg ely t h e s a m e c o m petitiv e f o rc es ( S ee E xhib it 4 -1 , belo w ). In to bacco , fo r e x am ple , Im peria l T obacco a n d A ltr ia h av e re tu rn s th at are ev en h ig her th an th e in dustr y av era g e, g iv in g th em p ositiv e fir m effe cts . R ey nold s A m eric an an d oth ers , in co ntr a st, hav e neg ativ e fir m effe cts . I n a ir lin es, R yan air a n d S outh w est b uck th e n eg ativ e in dustr y r e tu rn while m an y o f t h eir c o m petito rs f a re f a r, f a r w ors e . The c h art o n F urn itu re R eta ilin g s h ow s th e n et p ro fit m arg in f o r a n um ber of f u rn itu re r e ta ile rs a ro und t h e g lo be. A vera g e p ro fits i n t h e i n dustr y a re l o w (4 .9 p erc en t) , b ut s o m e fir m s d o b ette r th an th e a v era g e, a n d IK EA (w hole re tu rn s a re e stim ate s) i s a t o r n ear t h e t o p o f t h e p ack . 12 The key questio n: W hat ex pla in s th e fir m effe ct th at cre ate s su ch dif fe re n ces a m ong p la y ers in a n in dustr y ? W hat c an le ad a c o m pan y lik e IK EA t o e x cel e v en i n a b usin ess a s t o ugh a s t h is ? The a n sw er, I b elie v e, b eg in s w ith p urp ose . P urp ose is w here p erfo rm an ce dif fe re n ces s ta rt. N oth in g e ls e is m ore im porta n t to th e s u rv iv al a n d s u ccess of a f ir m t h an w hy i t e x is ts , a n d w hat o th erw is e u nm et n eed s i t i n te n ds t o f ill. It is th e fir s t a n d m ost im porta n t q uestio n a str a te g is t m ust a n sw er. E very co ncep t o f s tr a te g y th at h as e n te re d th e c o nvers a tio n o f b usin ess m an ag ers — su sta in ab le c o m petitiv e a d van ta g e, p ositio nin g, d if fe re n tia tio n, a d ded v alu e, ev en t h e f ir m e ffe ct— flo w s f ro m p urp ose . EFFE C TIV E P U RPO SE S All th is s o unds a ttr a ctiv e to th e le ad ers I’v e w ork ed w ith . It s e em s to lif t th eir w ork a b ove th e d og-e at- d og w orld o f c u tth ro at c o m petitio n a n d h ars h re ality . M ost o f th em w an t to f e el th at w hat th ey d o m atte rs in s o m e c o nte x t la rg er th an th em se lv es a n d la rg er e v en th an th eir c o m pan ie s. T hey w an t to pla y th eir r o le s o n a s la rg e a s ta g e a s p ossib le . A nd s o th ey e m bra ce th e id ea of p urp ose b ecau se i t f e els i n sp ir in g. A nd, a s w e’ll s e e, t h at’ s p art o f i t. B ut t o be a s e rio us g uid e f o r a c o m pan y, a p urp ose n eed s t o d o m uch m ore . A g ood p u rp ose is e n noblin g. It m ak es a fir m ’s e n deav ors n oble o r m ore dig nif ie d . I n a d ditio n t o i ts o th er m erits , a g ood p urp ose c an s a tis fy t h is n eed . It is in sp ir in g to a ll in volv ed , to th e e m plo yees p urs u in g it, to c u sto m ers , a n d to o th ers in y our v alu e ch ain . T he p eo ple at IK EA d on’t b elie v e th ey ’re flo ggin g c h eap fu rn itu re . T hey b elie v e th ey ’re c re atin g “ a b ette r e v ery day lif e ” f o r t h e m an y p eo ple w ho c an ’t a ffo rd t o p-e n d f u rn is h in gs. In a G allu p p oll n early a ll r e sp onden ts s a id it is “ v ery im porta n t” o r “ fa ir ly im porta n t” to th em to “ b elie v e lif e is m ean in gfu l o r h as a p urp ose ,” b ut le ss th an h alf o f th e w ork ers in an y in dustr y fe lt str o ngly co nnecte d to th eir org an iz atio n’s p urp ose . E qually in te re stin g, a n um ber o f p eo ple in le ss th an lif e -a n d-d eath care ers (fo r ex am ple , se p tic ta n k pum pin g, re ta il tr a d es, ch em ic al m an ufa ctu rin g) fe lt a str o ng co nnectio n to th e goals of th eir org an iz atio ns, w hile o th ers in s o m e tr a d itio nal “ h elp in g” f ie ld s ( fo r e x am ple , hosp ita l w ork ers ) f e lt f a r l e ss c o nnectio n. A n a n aly sis o f t h e w ork c o nclu ded : There is n o su ch th in g a s a n in here n tly m ea nin gle ss jo b. T here a re co nditio ns th at m ake th e se em in gly m ost im porta nt ro le s tr iv ia l and co nditio ns th at m ake o ste n sib ly a w fu l w ork re w ard in g. . . . T he le a st en gaged gro up se es th eir work as sim ply a jo b: a necessa ry in co nven ie n ce and a w ay of ea rn in g m oney w ith w hic h th ey ca n acco m plis h p erso nal g oals a nd e n jo y t h em se lv es o uts id e o f w ork . 13 Don’t o verlo ok th e ro le o f p urp ose in fo ste rin g th e c are a n d c o m mitm en t th at l e ad p eo ple to p ro duce g ood r e su lts . C onsid er a b usin ess f o rm s c o m pan y th at s e lls its s e rv ic es to s m all b usin esse s. Y ou c an ’t g et m uch m ore m undan e th an in voic es a n d s a le s s lip s, b ut th e p eo ple th ere sa id : “ W hat w e d o is n ’t gla m oro us, b ut i t’ s e sse n tia l. W hen y ou c an ’t p ay p eo ple o r g iv e t h e c u sto m er a r e ceip t, t h e b usin ess s to ps r u nnin g.” A g ood p u rp ose p u ts a s ta ke i n t h e g ro u nd. I t s a y s “ W e d o X , n ot Y .” “ W e will b e t h is , n ot t h at . ” I t’ s a c o m mitm en t. Choosin g to b e o ne th in g m ean s n ot b ein g s o m eth in g e ls e . M ic h ael P orte r re co gniz ed th at su ch c h oic es in volv e tr a d e-o ffs — le ttin g so m e th in gs g o in ord er to b e b ette r at so m eth in g els e . 14 C om pan ie s th at d on’t ch oose , fo r whate v er r e aso n, r u n t h e r is k o f e n din g u p i n n o-m an ’s -la n d, b ein g n oth in g o f dis tin ctio n to an yone. If your purp ose does not pre clu de you fro m underta k in g c erta in k in ds o f w ork , t h en i t’ s n ot a g ood p urp ose . P urp ose , l ik e str a te g y, is a b out c h oic e, a n d a re al c h oic e c o nta in s, if o nly im plic itly , b oth positiv e (“ W e d o th is ” ) a n d n eg ativ e (“ B y im plic atio n, th en , w e d on’t d o so m eth in g e ls e ”) e le m en ts . One e x ecu tiv e I w ork ed w ith in th e E O P p ro gra m , P ed ro G uim ara es, a CEO o f a s m all b ut g ro w in g m ovie p ro ductio n c o m pan y, d is c o vere d t h is o nly afte r h e c la rif ie d h is p urp ose . H is fir m w as p rim arily b ack ed b y a n a n gel in vesto r, a w om an w ho h ad b eco m e v ery w ealth y fro m h er o w n b usin ess ven tu re s a n d n ow , th ro ugh th is c o m pan y, w as p urs u in g a lo ngtim e p ers o nal lo ve o f m ovie s a n d c u ltu re in g en era l. A s p art o f o ur w ork in th e p ro gra m , Ped ro w ro te o ut h is p urp ose f o r th e c o m pan y, d esc rib in g h ow it w ould m ak e money th ro ugh th e pro ductio n of ad vertis in g an d m ovie s th at were co m merc ia l s u ccesse s. When h e s h ow ed th e p urp ose to h is in vesto r, h e d is c o vere d w hat h ad o nly been s im merin g u nder t h e s u rfa ce o f t h eir r e la tio nsh ip . H e w an te d t o p ro duce to p-g ro ssin g b ox-o ffic e h its a n d m ak e p ro fits . S he h ad little in te re st in th ose an d in ste ad , p rim arily w an te d to p ro duce a rt film s, th e k in d o nce m ad e b y In gm ar B erg m an in S w ed en o r F ed eric o F ellin i in Ita ly . A t th at m om en t h e fin ally u nders to od w hy t h e i n vesto r h ad b alk ed a t a n um ber o f p ro je cts h e h ad pro pose d . F ro m th e o uts e t th ey h ad b een o n d if fe re n t p ag es, b ut h ad n ev er dug d eep ly e n ough in to th eir re sp ectiv e p urp ose s to s e e th e in co m patib ility . They p arte d c o m pan y a m ic ab ly , a n d e ach w en t o n t o v en tu re s t h at w ere m ore co nsis te n t w ith t h eir d if fe re n t a im s. A g ood p u rp ose se ts y o u a part; it m akes y o u d is tin ct. If y ou c an o nly desc rib e y our b usin ess g en eric ally — “W e’re a P R fir m ” o r “W e’re an IT co nsu ltin g co m pan y”— th en y ou d on’t h av e a re al p urp ose . S om eh ow th e re aso n y ou e x is t, th e s p ecif ic c u sto m ers y ou’v e c h ose n to s e rv e, th e m ark et need s y ou fill, m ust s e t y ou a p art fro m o th ers w ho g en eric ally d o w hat y ou do. G en eric ally , IK EA is a fu rn itu re re ta ile r, b ut th at d esc rip tio n d oesn ’t beg in to sa y w hy it m atte rs or w hat dis tin guis h es it fro m oth ers in th e in dustr y . H ere i s h ow I K EA d esc rib es i ts d if fe re n ce: Fro m t h e b eg in nin g, I K EA h as t a ken a d iffe re n t p ath . . . . I t’ s n ot d iffic u lt to m anufa ctu re e xp en siv e f in e f u rn itu re . J u st s p en d t h e m oney a nd l e t t h e cu sto m ers p ay. T o m anufa ctu re b ea utifu l, d ura ble f u rn itu re a t l o w p ric es is n ot s o e a sy . I t r e q uir e s a d iffe re n t a ppro ach . F in din g s im ple s o lu tio ns, sc rim pin g a nd s a vin g i n e very d ir e ctio n. E xcep t o n i d ea s. 15 Where d o d if fe re n ces c o m e f ro m ? T hey a ris e f ro m in novatio n, n ew id eas, an d d eep in sig hts a b out h ow th in gs a re a n d h ow th ey c o uld b e b ette r in s o m e co nse q uen tia l w ay . T hese c an b e a n yth in g f ro m a n ew p ro ductio n t e ch nolo gy th at e n han ces e ffic ie n cy , to n ew , d if fe re n t, a n d m ore a p pealin g p ro ducts , to a ch an ge i n t h e w ay p ro ducts o r s e rv ic es a re s o ld o r d eliv ere d . S om etim es w hat matte rs is n ot ju st o ne in novatio n, b ut a c lu ste r o f in novatio ns th at f lo w f ro m a n ew c o ncep t, a n ew w ay o f d oin g b usin ess. T his w as t h e c ase f o r I K EA . I ts gre ate st in novatio ns w ere n ot in o rig in al fu rn itu re d esig ns, o r e v en in th e te ch nic al in ven tio n o f th e f la t p ack , b ut in a n ew id ea o f h ow to g o to m ark et an d how to pro vid e a se t of cu sto m ers w ith pro ducts an d a sh oppin g ex perie n ce t h at m et t h eir n eed s r e so undin gly w ell. IK EA ’s e x perie n ce illu str a te s a k ey a d van ta g e o f a g ood p urp ose . A c le ar se n se o f w hat a c o m pan y is s tr iv in g to d o c an s e rv e a s a f o cal p oin t o r a c o re org an iz in g p rin cip le a ro und w hic h a w hole s e t o f in novatio ns a n d d is tin ctiv e fe atu re s c an c o ale sc e. Above a ll, a g ood p u rp ose s e ts t h e s ta ge f o r v a lu e c re a tio n a n d c a ptu re . Good e co nom ic s a re n ot th e o nly r e aso n y our b usin ess e x is ts , b ut w ith out th em , i t’ s u nlik ely t h at a n y o f y our o th er g oals w ill b e r e aliz ed . Whate v er y our p urp ose , it m ust m ean so m eth in g to o th ers in w ay s th at pro duce g ood e co nom ic o utc o m es fo r y ou. W hat m ad e IK EA ’s p urp ose s o pow erfu l w as n ot ju st th at it w as d is tin ctiv e o r w ell- d efin ed , o r th at it m ad e peo ple fe el part of so m eth in g big ger an d m ore im porta n t. It als o dro ve IK EA ’s s u perio r p erfo rm an ce i n i ts i n dustr y . ADDIN G V ALU E F O R E V ER YO NE The a cid te st, th en , o f a p urp ose is th is : W ill it g iv e y ou a d if fe re n ce th at matte rs i n y our i n dustr y ? Not all dif fe re n ces are eq ual. You need a dif fe re n ce with re al co nse q uen ces. I o fte n s e e c o m pan ie s c la im d if fe re n ces th at in f a ct a re s im ply poin ts o f d is tin ctio n w ith out m uch co nse q uen ce in th eir in dustr ie s— “o ne- sto p s h oppin g,” “ o ld est c o ntin ually o pera te d ,” “ la rg est i n dep en den t s u pplie r.” Even a le g itim ate d if fe re n ce s u ch a s “ b est- in -c la ss q uality ” is o fte n r e n dere d mean in gle ss by co m pan ie s th at tr u m pet th e w ord s but don’t m ak e th e in vestm en ts o r t o ugh t r a d e-o ffs s u ch a g oal r e q uir e s. IK EA ’s p urp ose se t it u p to d eal w ith th e in dustr y fo rc es th at sc u ttle d Masc o a n d m an y o th ers in th e f u rn itu re b usin ess. T he c o m pan y to ok tw o o f th e in dustr y ’s big gest pro ble m s— pric e co m petitio n an d cu sto m ers ’ lo w willin gness t o p ay — an d m ad e t h em a v ir tu e t h ro ugh s p ecif ic t e ch niq ues s u ch as le an m an ufa ctu rin g, th e fla t pack , an d sto re desig n. It dealt w ith th e in dustr y ’s c o stly p ra ctic e o f m an ufa ctu rin g a h uge v arie ty o f fu rn is h in gs b y se llin g a l im ite d s e le ctio n o f f u rn itu re p ie ces w ith in o ne s ty le . Man y p eo ple th in k a b out s tr a te g y a s a z ero -s u m g am e b etw een a f ir m a n d its c o m petito rs , s u pplie rs , a n d c u sto m ers : H ow d o w e w in ? H ow d o w e g et what’ s b est f o r u s? I n d oin g s o , t h ey l a rg ely f o cu s o n t h e s p here t h at’ s c lo se st to h om e: in cre asin g th eir o w n p ro fits — th ro ugh h ig her p ric es o r lo w er c o sts . On t h e A dded V alu e c h art, i t’ s t h e r e g io n c alle d “ V alu e c ap tu re d b y f ir m .” 16 A tr io of eco n om is ts 17 — Adam B ra n den burg er, B arry N ale b uff, an d Harb orn e Stu art— who stu dy gam e th eo ry su ggest a w id er an gle . T hey re m in d u s th at m an ag ers n eed to th in k n ot o nly a b out w hat’ s b est fo r th eir ow n f ir m s, b ut a ls o a b out h ow w hat th ey d o a ffe cts o th ers . T his in volv es th e tw o oute r lin es: C usto m ers ’ W illin gness to Pay (e sse n tia lly cu sto m ers ’ sa tis fa ctio n w ith a g ood o r se rv ic e) an d S upplie rs ’ W illin gness to S upply (e sse n tia lly th eir o pportu nity c o st— th e lo w est p ric e a t w hic h th ey w ould b e willin g to se ll to a p artic u la r fir m ). It’ s w hen a co m pan y d riv es a w id er wed ge betw een th ese lin es— ex pan din g th e to ta l valu e cre ate d — th at its ex is te n ce m atte rs i n a n i n dustr y . W hen i t d oes s o , i t i s m uch m ore l ik ely t o b e ab le to c la im s o m e o f th e v alu e f o r its e lf — i.e ., in cre ase its o w n p ro fita b ility —with out m ak in g i ts p artn ers i n t r a d e l e ss w ell o ff. Wal- M art i s a c la ssic e x am ple . I t o ffe rs i ts c u sto m ers g ood q uality p ro ducts at c o nsid era b ly lo w er p ric es, in cre asin g th e v alu e c u sto m ers c ap tu re f ro m th e re la tio nsh ip . A t th e s a m e tim e, W al- M art lo w ers its o w n c o sts b y lo w erin g th e c o sts o f its s u pplie rs . I t d oes th is b y b uyin g in s c ale , s h arin g in fo rm atio n, an d t a k in g c o sts o ut o f th eir s y ste m s. There a re i n te re stin g p ara lle ls b etw een S am W alto n a n d I n gvar K am pra d — fo r ex am ple , th ey both nurtu re d th eir vis io n of lo w -c o st re ta ilin g in back w ate rs , w here th ey le arn ed how to co urt cu sto m ers w ith out m uch money . T he m ost im porta n t p ara lle l, th ough, f ro m th e s ta n dpoin t o f s tr a te g y, is th at th ey both unders to od th e ben efits of ad din g valu e th ro ugh one’s ex is te n ce, n ot j u st f ig htin g o ver w ho g ets t h e b ig gest s h are o f t h e p ie . As it w as gro w in g in to th e co m pan y it has beco m e, IK EA help ed its su pplie rs sa v e m oney . It desig ned fu rn itu re to be le ss ex pen siv e to man ufa ctu re . Its fla t- p ack ap pro ach elim in ate d sig nif ic an t sh ip pin g an d asse m bly co sts . It ord ere d in volu m e an d pro vid ed data th at m ad e its su pplie rs m ore e ffic ie n t. F or s u pplie rs , a ll o f th ese d ro ve d ow n th e c o sts o f doin g b usin ess w ith I K EA , a n d, i n t u rn , r e d uced t h e p ric e a t w hic h t h ey w ere willin g t o s e ll t o t h e f ir m . There ’s s till m ore to IK EA ’s d if fe re n ce th at m atte rs . T hro ugh d esig n a n d th e d is tin ctiv en ess o f its a p pro ach , it c re ate d n am e r e co gnitio n in a b usin ess not k now n fo r s tr o ng b ra n ds. It b ro ke a n a n cie n t tr a d itio n o f fu rn itu re a s a lo ng-te rm in vestm en t, a n d p ro m ote d th e v ie w o f f u rn itu re a s f a sh io n. A nd it co unte re d c u sto m ers ’ g en era l re lu cta n ce to sh op fo r fu rn itu re b y p ro vid in g fre e ch ild care an d lo w -p ric ed re sta u ra n ts w ith g ood fo od, b oth o f w hic h in cre ase d th e le n gth o f tim e p eo ple sp en t in th e sto re . 18 S o IK EA c re ate d valu e a ll a ro und: V en dors c o uld p ro duce a n d se ll fo r le ss, c u sto m ers w ere ple ase d w ith th e ex perie n ce y et ab le to p ay le ss, an d IK EA w as ab le to cap tu re s o m e o f t h at v alu e i ts e lf . Successfu l p re m iu m -p ric ed p la y ers , lik e B M W o r D is n ey , cre ate v alu e dif fe re n tly . T heir g oal is to p ro vid e u nco m monly g ood p ro ducts o r s e rv ic es th at c o m man d h ig h p ric es a n d g en era te p artic u la rly h ig h le v els o f c u sto m er sa tis fa ctio n. T o d o s o , th ey ty pic ally in cu r h ig her-th an -a v era g e c o sts th at a re more t h an c o m pen sa te d f o r b y i n cre ase s i n c u sto m ers ’ w illin gness t o p ay . For a n y f ir m , h ow ev er, th e lo gic is th e s a m e: Y ou c re ate v alu e b y d riv in g th e w id est w ed ge y ou c an b etw een th e s a tis fa ctio n o f y our c u sto m ers a n d th e all- in c o sts o f y our s u pplie rs . 19 T hat m ean s n ot o nly m ovin g y our o w n c o sts or p ric es re la tiv e to o th ers in th e in dustr y , b ut m ovin g o ne o r b oth o f th ose oute r l in es a s w ell. Via b le purp ose s, w orth y of guid in g ev ery th in g els e th at hap pen s in a co m pan y, m ust m atte r n ot o nly to y ou b ut a ls o to th ose w ith w hom y ou d o busin ess. C re atin g v alu e f o r o th ers i s t h e s u re st w ay t o c ap tu re s o m e y ours e lf . DO ES YO UR B U SIN ESS M ATTER ? It’ s n ot a s e asy a s y ou m ig ht th in k to k now w heth er y our b usin ess h as a via b le p urp ose , o r w heth er it tr u ly ad ds v alu e in y our in dustr y . F in an cia l su ccess at an y giv en m om en t is an in dic atio n, but m ay pro ve fle etin g. How ev er, th ere is o ne s im ple q u estio n 20 th at— if y ou c an a n sw er it h onestly —will g iv e y ou a g ood i d ea. I n e sse n ce, i t’ s t h e o ne I a sk ed y ou a t t h e s ta rt o f th is b ook: If yo u r co m pan y dis a ppea re d to day, w ou ld th e w orld be dif fe re n t to m orro w ? D esp ite o ur lo ng d is c u ssio ns ab out p urp ose , an d th eir g en era l buy-in to th e id ea, th is q uestio n a lw ay s c atc h es E O P e x ecu tiv es b y s u rp ris e . Fra n kly , it’ s n ot a q uestio n m ost h av e b een a sk ed o r a sk ed th em se lv es. I t’ s a re al s o ul- s e arc h er. B ut i t’ s o ne I h ope y ou r e co gniz e t h at y ou n eed t o a n sw er. Here ’s w hat it m ean s to b e d if fe re n t in a w ay th at m atte rs in y our in dustr y . It m ean s th at, if y ou d is a p pear, th ere w ill b e a h ole in th e w orld , a te ar in th e univ ers e o f th ose y ou s e rv e, y our c u sto m ers . I t m ean s c u sto m ers o r s u pplie rs won’t b e a b le to g o o ut a n d im med ia te ly fin d so m eo ne e ls e to ta k e y our pla ce. If y ou d on’t h av e th at d if fe re n ce, n obody w ill m ourn y ou w hen y ou’re gone. And i f t h ey w on’t m is s y ou t h en , h ow much d o t h ey n eed y ou n ow ? One m ore q uestio n: W hose jo b is it to f in d a n a n sw er, to m ak e s u re th ere ’s an a n sw er? It’ s y our jo b, th e jo b o f th e s tr a te g is t, th e le ad er w ho’s r e sp onsib le f o r th e su ccess a n d s u rv iv al o f t h e f ir m . It m ay n ot b e th e jo b o f th e str a te g is t to in ven t a fir m ’s p urp ose o n th e lo nely m ounta in to p a n d th en c o m e d ow n a n d d eliv er it. M an y p eo ple m ay b e in volv ed in its cre atio n. B ut w heth er th ere is a p urp ose an d w heth er th at purp ose i s v ia b le i s a l e ad er’s f ir s t r e sp onsib ility . This i s t h e s tr a te g is t’ s j o b. Are y ou a s tr a te g is t? Chap te r 5 Turn P urp ose i n to R eality A S T H E IK EA s to ry d em onstr a te s, d efin in g a s o und a n d d is tin ctiv e p urp ose f o r y our b usin ess i s e sse n tia l. I t i s a s tr a te g is t’ s w ay t o s ta k e a c la im . W ith i t, y ou h av e e arn ed t h e r ig ht t o p la y , t o t a k e p art i n t h e g am e. But w in nin g t h e g am e? T hat t a k es m ore . Consid er th e e x perie n ce o f D om en ic o D e S ole , a n Ita lia n -b orn , H arv ard – t r a in ed ta x a tto rn ey w ho in 1 994-9 5 w as th ru st in to th e to p jo b a t G ucci. 1 T hough h e h ad p re v io usly le d th e c o m pan y’s N orth A m eric an o pera tio ns, h e w as stu nned b y w hat h e d is c o vere d w hen h e sa w th e e n tir e ty o f th e o nce- a d m ir e d c o m pan y. S ale s w ere p lu m metin g, c u sto m ers w ere in dif fe re n t, a n d r e d in k w as flo w in g. In te rn ally , G ucci had re ach ed a sta te of para ly sis : M an ag em en t w as balk an iz ed an d peo ple w ere sc are d to m ak e im porta n t d ecis io ns, e v en a b out s u ch b asic is su es a s g uara n te ein g a s u pply o f b am boo h an dle s fo r G ucci’ s sig natu re han dbag . “T here w as no m erc h an dis e , no p ric in g, n o w ord p ro cesso rs , n o b am boo h an dle s. I t w as c ra zy !” h e s a id la te r. T hough th ere w ere im pre ssiv e han dbag desig ns, “th e co m pan y co uld n’t p ro duce t h em o r d eliv er t h em .” 2 Gucci, o nce a s y m bol o f h ig h f a sh io n a n d in sp ir e d d esig n, h ad lo st its w ay s o b ad ly th at th e in vesto rs w ho o w ned it w an te d o ut. A n e ffo rt to se ll th e c o m pan y h ad fa ile d a fte r th e b id s w ere d eem ed to o p altr y to a ccep t, s o th e i n vestm en t gro up ask ed D e S ole to put th e house in ord er an d se ll th e c o m pan y’s s h are s t o t h e p ublic — as s o on a s p ossib le . De S ole so m eh ow had to cre ate valu e in a fa ilin g co m pan y th at w as o pera tin g in a n oto rio usly d if fic u lt in dustr y . C le arly a s tr o ng p urp ose a lo ne, n o m atte r how w ell cra fte d , w as not goin g to so lv e his m an y pre ssin g p ro ble m s. H e n eed ed a b ro ad er r a n ge o f t o ols t o s to p t h e b le ed in g a n d r e sto re Gucci’ s l u ste r. When I in tr o duce D e S ole a n d th e G ucci c h alle n ge to th e E O P e x ecu tiv es, so m e of th em are alw ay s dis m ay ed . E yeb ro w s ra is e . T hey lo ok to one an oth er a n d to m e, a s if to a sk : “ G ucci? T he d esig ner f a sh io n in dustr y ? A re you s u re th at’ s re le v an t to u s? ” I u nders ta n d th eir c o ncern s. F or o ne th in g, man y o f th ese m an ag ers v ie w th e w orld o f fa sh io n a s a lm ost a n o utlie r, s o much a b out g la m or a n d c ele b rity th at it is n ot su bje ct to th e la w s o f re al mark ets . B ut in a h ig h-p ro file , h ig h-m arg in in dustr y th at h as g ro w n o ver th e decad es d esp ite its se n sitiv ity to e co nom ic d ow ntu rn s, G ucci’ s re v iv al is a sto ry o f tr iu m ph a n d o uts ta n din g m an ag em en t. It d id n’t ju st c o m e b ack , it so are d b ack i n w hat i s w id ely r e g ard ed a s a s p ecta cu la r b usin ess t u rn aro und. The le sso ns it o ffe rs f o r s tr a te g is ts a re tim ele ss. S ooner o r la te r, n early a ll le ad ers w ill w re stle w ith a t le ast s o m e o f D e S ole ’s c h alle n ges. A nd t h e t o ols he use d to nav ig ate his w ay to w ard w in nin g w ere ju st as valu ab le an d mean in gfu l w hen G ucci w as o nce a g ain c lic k in g o n a ll c y lin ders a s t h ey w ere when t h e b usin ess w as f o underin g. A B ellm an ’s L eg acy To u nders ta n d th e c ro ssro ad s w here D e S ole s to od, it h elp s to u nders ta n d th e c o m pan y’s h is to ry . Guccio G ucci open ed his fir s t le ath er goods w ork sh op-c u m -s to re in Flo re n ce, I ta ly , i n 1 923, f o cu sin g o n f in e a rtis a n sh ip a n d a s ta n dard o f q uality sh ap ed b y h is y ears w ork in g a s a b ellm an i n L ondon’s S av oy H ote l, w here h e ab so rb ed th e im peccab le ta ste o f th e v ery r ic h a n d v ery f a m ous. T he f o rm ula pro ved s u ccessfu l, a n d a s h is b usin ess g re w , h e b uilt a r e p uta tio n f o r p ro ducts of sty le an d b eau ty . A t th e u rg in g o f h is so n A ld o, G ucci ex pan ded th e busin ess to R om e, M ila n , a n d, in 1 953, to N ew Y ork . J u st tw o w eek s la te r, Guccio G ucci d ie d . With A ld o a t th e h elm , b ro th er R odolf o in c h arg e o f th e s u ccessfu l M ila n opera tio n, a n d b ro th er V asc o r u nnin g th e f a cto ry in F lo re n ce, th e c o m pan y’s gro w th w as n oth in g s h ort o f p hen om en al. T he p ost– W orld W ar I I p erio d s a w a n ew ap petite fo r lu xury g oods in th e d ev elo ped w orld , alo ng w ith th e eco nom ic g ro w th to p ay fo r th em , a n d G ucci p ro ducts re p re se n te d c la ssic sty le “ h an dm ad e” f o r a s a v vy e lite . “Q uality is r e m em bere d lo ng a fte r p ric e is f o rg otte n ” w as h ow A ld o p ut it, em bossin g t h e s ta te m en t i n g old l e tte rs o n p ig sk in p la q ues d is p la y ed i n G ucci sto re s. T he g re at m ovie s ta r b eau tie s o f th e d ay , lik e S ophia L ore n a n d G ra ce Kelly , w ere p hoto gra p hed c arry in g G ucci b ag s. E le an or R oose v elt a n d th e queen o f E ngla n d w ere k now n to f a v or G ucci u m bre lla s. T he la b el c o nfe rre d th e s ta tu s o f b elo ngin g i n t h e s a m e c o m pan y a s t h ese w om en a n d s h ow ed t h at you h ad t h e m ean s t o b uy s o m eth in g e x quis ite . W om en f ro m B ev erly H ills t o London, fro m P aris to T okyo p ack ed th e sto re s, a n e n th usia sm th at la ste d th ro ugh m uch o f t h e 1 970s. So, I a sk m y s tu den ts a n d y ou, w here w as G ucci f ittin g i n to i ts c o m petitiv e la n dsc ap e? H ow w as i t d ra w in g i n c u sto m ers a n d k eep in g p ro fits u p? For t h e a n sw er, i t’ s i n str u ctiv e t o l o ok a t w hat c an b e t h ought o f a s a pro fit fr o ntie r , 3 a v is u al m ap th at w eig hs a c u sto m er’s w illin gness to p ay a h ig h o r lo w p ric e f o r p artic u la r p ro ducts a g ain st a c o m pan y’s a b ility t o p ro duce t h ose pro ducts a t a h ig h o r lo w c o st. F or in sta n ce, a c o m pan y th at s e lls p ro ducts a t th e lo w est p ric es in a n in dustr y m ust, b y n ecessity , k eep its c o sts e x tr e m ely lo w , o r it’ s o ff th e fro ntie r. A c o m pan y lik e G ucci c an a ffo rd h ig her c o sts only i f i ts c u sto m ers a re w illin g t o p ay g en ero us p ric es. A cco rd in g t o M ic h ael Porte r, th e f ro ntie r c an b e th ought o f “ as th e m ax im um v alu e th at a c o m pan y deliv erin g a p artic u la r p ro duct o r s e rv ic e c an c re ate a t a g iv en c o st, u sin g th e best av aila b le te ch nolo gie s, sk ills , m an ag em en t te ch niq ues, an d p urc h ase d in puts .” 4 Com pan ie s a ctu ally on th e p ro fit f ro ntie r r e p re se n t b est in c la ss; f o r e v ery pric e, th ey a re th e m ost e ffic ie n t p ro ducers . T hose o ff th e fro ntie r a re le ss effic ie n t a n d le ss a b le to d if fe re n tia te th eir p ro ducts o r s e rv ic es. T hey a re a t se a i n a n i n dustr y d efin ed a n d d om in ate d b y c o m pan ie s o n t h e f ro ntie r. Thro ugh t h e 1 970s, G ucci w as o n t h e u pper l e ft- h an d c o rn er o f t h e f ro ntie r; it sto od w ith H erm ès an d C han el in a hig h-c o st, hig h-w illin gness-to -p ay positio n, its b ra n d re so natin g w ith ele g an ce, w ealth , an d su ccess. B ut th e co m pan y b eg an u nra v elin g a fte r th e d eath o f V asc o G ucci in 1 975. A ld o a n d Rodolf o th en e ach h eld 5 0 p erc en t o f th e c o m pan y. A ld o, h ow ev er, b elie v ed th at h e h ad p ut f a r m ore i n to b uild in g t h e f a m ily b usin ess t h an h is b ro th er h ad an d r e se n te d th at th e tw o s h are d o w ners h ip e q ually . H e w an te d m ore , a n d to get i t, h e d ev elo ped a n oth er c o m pan y u nder t h e G ucci u m bre lla . The n ew b usin ess, 8 0 p erc en t o f w hic h w as o w ned b y A ld o a n d h is th re e so ns, p ro duced a lin e o f sm all can vas ite m s sp ortin g th e G ucci lo go an d tr im med in le ath er w ith s tr ip ed w eb bin g. T he G ucci A ccesso rie s C olle ctio n, as th e b usin ess w as c alle d , w ould r e ach a w id er r a n ge o f c o nsu m ers , d ev elo p an d lic en se n ew p ro duct lin es d is tr ib ute d th ro ugh a n ew s e t o f c h an nels , a n d ex te n d th e re ach o f th e G ucci b ra n d. L au nch ed in 1 979 an d m an ag ed b y Ald o’s s o n, R oberto , t h e a ccesso rie s c o lle ctio n t u rn ed o ut t o b e a s u rp ris in gly lu cra tiv e ven tu re , re aliz in g ab undan t re v en ue fo r vir tu ally no ex pen se , prim arily v ia l ic en sin g a rra n gem en ts . Too M an y C ook s This se em in gly sim ple so lu tio n w ould tu rn in to a fia sc o — an d so on a ven detta w orth y o f a Sopra nos e p is o de. “ A ll h ap py f a m ilie s a re a lik e,” w ro te Tols to y; “ ev ery u nhap py f a m ily is u nhap py in its o w n w ay .” H e c o uld h av e ad ded a w hole o th er c ate g ory o f fa m ily d ynam ic s— th at o f a fa m ily -o w ned co m pan y, a s itu atio n t h at o fte n c h alle n ges b oth c o m pan ie s a n d f a m ilie s. The n ew a ccesso rie s c o lle ctio n s p urre d a n oth er o f A ld o’s s o ns, P ao lo , to dev elo p h is o w n l in e o f c h eap er p ro ducts f o r y ounger c u sto m ers , a n i n itia tiv e his fa th er to ok e x tr e m e m easu re s to s to p. In re ta lia tio n, P ao lo c o nta cte d th e U.S . I n te rn al R ev en ue S erv ic e, in fo rm in g it th at h is f a th er, th en o n th e b rin k of b eco m in g a U .S . c itiz en , h ad b een c h eatin g o n h is ta x es, w hic h h elp ed se n d th e e ig hty -o ne-y ear-o ld m an to p ris o n. P ao lo a ls o tr ie d to ta r h is c o usin Mau riz io , R odolf o ’s so n, w ith th e sa m e ch arg e, an d M au riz io fle d to Sw itz erla n d. T he I ta lia n n ew sp ap er La R ep ubblic a w ro te : “ G is n ’t f o r G ucci, but f o r Guerra , ” t h e w ord f o r w ar i n I ta lia n . 5 With th e G ucci f a m ily n ow in tu rm oil a n d v ery o fte n in c o urt, ite m s w ith th e G ucci nam e pro lif e ra te d lik e so m e kin d of illn ess-in ducin g bacte ria . Unbrid le d lic en sin g p la ste re d th e n am e, a lo ng w ith th e re d -a n d-g re en lo go, on s n eak ers , p ack s o f p la y in g c ard s, w his k ey — in fa ct, o n a to ta l o f 2 2,0 00 dif fe re n t p ro ducts . A s Wom en ’s W ea r D aily la te r d ecla re d , it h ad b eco m e a “ch eap en ed a n d o vere x pose d b ra n d.” 6 W ors e , G ucci’ s le ss e x pen siv e ite m s were f a r e asie r t o c o unte rfe it t h an i ts f in e l e ath er g oods. Y ou c o uld b uy G ucci knock offs a n yw here — fro m th e b ack a lle y s o f B an gkok to d is c o unt s to re s in Den ver. N ow e v ery one c o uld h av e a G ucci b ag o r t r a v el w ith G ucci l u ggag e, so lo ng a s y ou d id n’t m in d c arr y in g fa k es— an d m illio ns o f p eo ple d id n ot. The fa m ily su ed to sto p p ro ductio n o f co unte rfe it G ucci to ile t p ap er b ut did n’t b oth er to g o to c o urt w hen a n e n te rp ris in g s h oppin g b ag m an ufa ctu re r cre ate d a G ooch y l in e o f p ro ducts . Each f a m ily m em ber w an te d a p ie ce o f t h e a ctio n a n d p urs u ed i t i n h is o w n way . In A ld o’s v ie w , h ow ev er, it s e em ed lo gic al to k eep e v ery th in g in th e fa m ily — in f a ct, h e b oaste d a b out i t: “ W e a re l ik e a n I ta lia n t r a tto ria ,” h e s a id ; “th e w hole fa m ily is in th e k itc h en .” 7 T he s im ile w as a ll to o a ccu ra te ; a s a tr a tto ria , G ucci w as n o lo nger a t th e a p ex o f fa sh io n’s alto c u cin a , w ith a sc arc e b ra n d t h at c o m man ded a h ig h p ric e. W ith out d is c ip lin ed o vers ig ht, t h e lic en sin g th at se em ed su ch a g ood id ea a t th e o uts e t— a h ig h-m arg in , lo w – co st b usin ess— underm in ed th e c o m pan y’s lo ng-s ta n din g p urp ose , a n d G ucci slid o ff th e p ro fit f ro ntie r a n d jo in ed th e m ora ss o f u nderp erfo rm in g f ir m s in th e m ark et. How c o uld it e v er fin d its w ay b ack ? W hat s te p s w ould y ou ta k e— what str a te g y— to r e su rre ct t h e c o m pan y a n d r e b uild G ucci’ s g ood n am e? Str u gglin g t o R esto re t h e G la m or Ald o w as s till a t w ar w ith h is s o ns w hen h is b ro th er R odolf o d ie d in 1 983. Rodolf o ’s s o n, M au riz io , b ack f ro m a y earlo ng e x ile in S w itz erla n d a n d n ow cle ar o f le g al tr o uble s, ste p ped to th e fo re fro nt. H e en lis te d th e fin an cia l su pport o f In vestc o rp , a B ah ra in -b ase d p riv ate e q uity fu nd, a n d m ad e a b id fo r to ta l co ntr o l o f th e fa m ily b usin ess. M ak in g co m mon cau se w ith h is co usin P ao lo , M au riz io e v en tu ally w as a b le t o b uy o ut t h e r e st o f t h e f a m ily . Mau riz io c alle d a m eetin g o f to p e m plo yees in F lo re n ce to a n nounce n ot ju st a c h an ge in le ad ers h ip b ut a n ew s tr a te g ic in te n t a s w ell. G ucci is “ lik e a fin e r a cin g c ar,” h e to ld th e c o m pan y’s m an ag em en t r a n ks— “a F erra ri.” B ut it h ad b een d riv en fo r fa r to o lo ng lik e “ a C in quecen to ”— th e tin y F ia t 5 00, sm alle r th an a V W B eetle , th at w as th e s ta n dard u tility c ar o f Ita ly . “ A s o f to day ,” M au riz io s a id , “ G ucci h as a n ew d riv er. A nd w ith th e rig ht e n gin e, th e r ig ht p arts , t h e r ig ht m ech an ic s, w e a re g oin g t o w in t h e r a ce!” 8 The r a ce t h e n ew d riv er i n te n ded t o w in w as a g ra n d p rix . “ G ucci h as t o r e – co nquer th e im ag e it h ad in its y outh ,” M au riz io to ld lu xury re ta il g en iu s Daw n M ello a s h e w ooed h er t o I ta ly a s h is c re ativ e d ir e cto r. “ I w an t t o b rin g back th e g la m our . . . to re -c re ate th e e x cite m en t.” 9 M ello fo llo w ed w here Mau riz io le d — back in tim e to th e h ey day o f G ucci’ s su ccess. “ S ty le , n ot fa sh io n” w as t h e M ello m an tr a f o r h er n ew d esig n t e am , a s i t s o ught t o c re ate ite m s “y ou don’t dis c ard afte r a se aso n.” 10 In ste ad th e co m pan y w ould co nsc io usly re -c re ate its o w n c la ssic s— th e p ro ducts th at h ad o rig in ally w on it fa m e an d fa v or. “O nce it w as a priv ile g e to ow n a G ucci bag ,” sa id Mau riz io , “ an d i t c an b e a g ain .” 11 He to ok d ra stic a ctio ns to a ch ie v e h is a im , tr y in g to c u t a w ay th e y ears o f bad decis io ns an d poor perfo rm an ce. H e ru th le ssly re d uced th e 22,0 00 pro ducts b earin g th e G ucci “ n am e” to 7 ,0 00, s la sh ed th e n um ber o f h an dbag sty le s fro m 3 50 to a m ore m an ag eab le 1 00, c lo se d m ore th an 8 00 o f th e th ousa n d sto re s, an d in Ja n uary 1990, su m marily sh ut dow n th e G ucci Accesso rie s C olle ctio n. H e als o je ttis o ned th e w hole sa le an d duty -fre e busin esse s, w ith n o b ack up o r r e p la cem en t t o f ill t h e s u dden e m ptin ess. The d ra stic a ctio ns h ad a d ra stic r e su lt: F ro m 1 991 to 1 993 G ucci a m asse d lo sse s o f ap pro xim ate ly $ 102 m illio n. 12 D urin g th is p erio d M au riz io w as sp en din g e x tr a v ag an tly . H e h elp ed s p onso r Ita ly ’s e n tr y in to th e A m eric a’s Cup s a ilin g c o m petitio n, d esig nin g e v ery th in g a b out th e b oat— in clu din g th e cre w ’s co stu m es. H e re n te d a fiv e-s to ry p ala zzo o n P ia zza S an F ed ele in Mila n f o r th e h ead o ffic e, a n d th en b eg an a m assiv e, f iv e-m onth r e n ovatio n. He a ls o b ought a six te en th -c en tu ry v illa th at h ad o nce b elo nged to E nric o Caru so , a n d h oped t o e sta b lis h a t r a in in g c en te r t h ere — at a n e stim ate d c o st o f $10 m illio n f o r r e fu rb is h in g. When th e n ew c o lle ctio n f in ally d id h it th e s to re s, M au riz io w ep t w ith jo y. “T his is w hat m y f a th er w ork ed f o r,” h e s a id th ro ugh h is te ars . “ T his is w hat Gucci u se d t o b e.” 13 Soon t e ars o f a n oth er k in d w ould b e s h ed . B eh in d t h e s c en es, t h ere w ere n o co st c o ntr o ls , n o in ven to rie s, n o fin an cia l p la n s in p la ce— only M au riz io ’s ch arm , w hic h w as co nsid era b le , an d h is m ark etin g in tu itio n. W ith all th e sp en din g, c ash w as tig ht f o r th e d esig n te am M ello w as p uttin g to geth er, a n d th e c o m pan y c o uld sc arc ely p ay its b ills o r m eet its p ay ro ll. A s c ash flo w slo w ed , M au riz io in cre ase d h is s p en din g a n d ra is e d p ro duct p ric es to le v els cu sto m ers w ere u nw illin g t o p ay . By 1 992, w hen th e c o m pan y lo st $ 50 m illio n o n r e v en ue o f $ 200 m illio n, In vestc o rp h ad lo st fa ith in h is a b ility to re aliz e h is v is io n. T he fo llo w in g year, w ith M au riz io f a cin g b oth p ers o nal a n d f in an cia l tr o uble s, it b ought o ut his s ta k e. 14 F or th e f ir s t tim e in th e c o m pan y’s h is to ry , th ere w as n o lo nger a Gucci r u nnin g G ucci, n o l o nger a f a m ily m em ber b eh in d t h e f a m ous n am e. A y ear la te r, u nab le to s e ll th e c o m pan y, In vestc o rp tu rn ed to D om en ic o De S ole . Pra gm atis m R ep la ces I n tu it io n Facin g a b usin ess o n lif e s u pport, D e S ole b eg an to a sse m ble a te am . H e pro m ote d T om F ord , a th ir ty -tw o-y ear-o ld ju nio r f a sh io n d esig ner, to r e p la ce Daw n M ello a s c re ativ e d ir e cto r w hen M ello c h ose to re tu rn to th e U nite d Sta te s. H e als o nam ed a new pro ductio n ch ie f an d a new C FO , an d str e n gth en ed th e in te rn atio nal m an ag em en t te am . C ru cia lly , h e a ls o s e cu re d a modest c ash i n fu sio n f ro m I n vestc o rp . These w ere n ecessa ry b ut n ot s u ffic ie n t s te p s. B efo re D e S ole c o uld b eg in to m ove th e co m pan y fo rw ard , he an d his te am had to cre ate a fre sh unders ta n din g o f G ucci’ s p urp ose . W hat c o uld th e c o m pan y b e? W hy m ig ht it m atte r? W hat w ould m ak e i t s p ecia l, u niq ue, a n d r e le v an t i n a w orld a w ash in H erm ès, C han el, P ra d a, an d L ouis V uitto n? S hould G ucci co ntin ue to str iv e to b e a lu xury b ra n d, a im ed a t th e u pper-u pper e n d? O r s h ould it b e so m eth in g e ls e ? W hat c o uld t h ey r e ally a ffo rd t o d o? This is w here th e s tr a te g is t h as to s te p u p, w here e v ery le ad er c o nfro nte d with d is a rra y , tu rm oil, a d eclin in g b usin ess, o r s u rg in g c o m petitio n f a ces th e gre ate st c h alle n ge. W hat w ill t h is r e v iv ed c o m pan y b e? When w e r e ach t h is p oin t i n E O P, t h e c la ss l o oks a t t h e p ro fit f ro ntie r, w ith Gucci m ile s a w ay f ro m a s w eet s p ot. T hough M au riz io h ad s o ught to r e tu rn th e c o m pan y to a h ig h-c o st, h ig h-w illin gness-to -p ay p ositio n o n th e f ro ntie r, he su cceed ed in m ere ly sh if tin g its p ositio n in th e m id dle o f n ow here to a hig h-c o st c o m pan y w ith p ric es c o nsu m ers w ould n ot p ay . The c la ss’s in stin ct is to im med ia te ly ju m p in a n d ta k e a ctio n. T hey ’re f in e with M au riz io ’s p urp ose ; w hat th ey w an t to d o is a b ette r jo b im ple m en tin g it. I u rg e th em to s lo w d ow n a n d lo ok a g ain . “ W hy h av e w e s p en t s o m uch tim e lo okin g at w here G ucci is o n th is g ra p h?” I ask th em . In itia lly th e an sw ers a re b ro ad . “ W e w an t to s e e h ow fa r o ff c o urs e G ucci d rif te d ,” o ne offe rs . “ W e w an t to u nders ta n d th e p ast to a v oid r e p eatin g th e s a m e m is ta k es ag ain ,” o ffe rs a n oth er. A fte r s o m e d is c u ssio n, s o m eo ne f in ally s e es th e m ore pre ssin g ch alle n ge. This is w here D e Sole m ust sta rt. B efo re he can do an yth in g to r e b uild th e e m battle d c o m pan y, h e m ust z ero in o n w here G ucci is n ow , a n d th en d ecid e w here h e w an ts to ta k e it. B efo re h e c an s e t o ut, h e must d ecid e w here h e i s h ead in g. This is e x actly w hat D e S ole d id . A s M au riz io h ad , h e s u m moned e v ery Gucci m an ag er w orld w id e to a m eetin g in F lo re n ce. B ut th ere w as a c ru cia l dif fe re n ce: H e d id n’t te ll th em w hat h e th ought G ucci s h ould b e. R ath er, h e ask ed th em to lo ok c lo se ly a t th e b usin ess a n d te ll h im w hat w as s e llin g a n d what w asn ’t. H e w an te d to ta ck le th e q uestio n “ n ot b y p hilo so phy, b ut b y data ,” b y a ctu al e x perie n ce, n ot i n tu itio n. 15 The d ata fro m h is m an ag ers w ere e y e-o pen in g: S om e o f G ucci’ s g re ate st re cen t su ccesse s cam e fro m its fe w se aso nal ite m s. T re n die r fa sh io n, n ot sty le , w as w here G ucci h ad b een g ettin g t r a ctio n. T he t r a d itio nal c u sto m er f o r whom M au riz io w as so nosta lg ic — th e w om an w ho ch eris h ed sty le , not fa sh io n, a n d w ho w an te d a c la ssic ite m s h e w ould b uy o nce a n d k eep fo r a lif e tim e— had n ot c o m e b ack w hole h earte d ly t o G ucci. De S ole an d F ord so berly w eig hed th e ev id en ce. L ik e M au riz io , th ey would h av e l ik ed t o k eep G ucci a t t h e to p o f t h e d esig ner w orld , b ut t h ey f e lt it w as n ot in th e c ard s g iv en th e re ality o f th e s itu atio n. R eg ain in g G ucci’ s elite s ta tu s w ould t a k e m ore m ark etin g m oney , m ore d esig n m oney , a n d m ore tim e t h an t h e c o m pan y h ad . “ W e w ere b ro ke,” D e S ole s a id l a te r. “ W e h ad t o be r e alis tic a b out w hat w e c o uld d o.” 16 In th e en d, th ey ch ose a purp ose dif fe re n t fro m M au riz io ’s an d th e co m pan y’s e arly y ears . T hey w ould n ot tr y to r e cap tu re G ucci’ s o ld p ositio n. In ste ad th ey w ould p la ce th e c o m pan y in th e u pper m id dle o f th e m ark et— lu xury a im ed a t t h e m asse s, c lo se r t o P ra d a a n d L ouis V uitto n. “ T he i d ea w as fa ir ly sim ple ,” D e S ole e x pla in ed . G ucci w ould b e “ fa sh io n-fo rw ard , h ig h quality , an d good valu e.” T hat m ean s “w e w ould need to be le ad ers in fa sh io n, d eliv er p ro ducts o f h ig h q uality , a n d g iv e o ur c u sto m ers g re at v alu e fo r w hat t h ey b uy f ro m u s,” h e s a id . 17 To su cceed , G ucci w ould h av e to c u ltiv ate a n ew g ro up o f c u sto m ers — younger a n d m ore m odern — an d le t g o o f th e w ealth y, c o nse rv ativ e, o ld er wom en w ho had tr a d itio nally been its m ain sta y . 18 T he m ove w ould be ch alle n gin g, a s F ord e x pla in ed : T he f a sh io n c o nsc io us “ h av e a s h ort a tte n tio n sp an . T hey h av e m ay be l e ss b ra n d l o yalty t h an o th er c u sto m ers .” B y c o ntr a st, he s a id , “ A c la ssic c u sto m er w ill b uy th e b lu e b la zer, th e c ash m ere tw in se t, an d re p la ce it w hen it is w orn o ut. A fa sh io n c u sto m er c o nsu m es, sh ops, buys, a n d d is p ose s o f, a n d th en b uys a g ain ”— whic h , h e n ote d , m ad e h er a very g ood c u sto m er t o h av e, 19 i f y ou c an k eep h er e n gag ed . “G ood valu e” w ould als o re q uir e big tr a d e-o ffs . Befo re th e fa m ily en tr e p re n eu ria l v en tu re s c h eap en ed th e b ra n d, G ucci h ad b uilt its re p uta tio n on d eliv erin g t h e h ig hest q uality r e g ard le ss o f c o st. B y t a k in g a p art H erm ès’s han dbag s a n d c o m parin g t h em w ith G ucci’ s , D e S ole a n d h is t e am c o nclu ded th at th eir c o m pan y w as s till c ap ab le o f p ro ducin g g oods o f h ig h q uality , b ut its c o st s tr u ctu re w as w ay o ut o f l in e. T o o ffe r g ood v alu e, t h at w ould h av e t o ch an ge. S o t o o w ould p ric es. Afte r re b uild in g th e e n tir e s o urc in g n etw ork , a n d lo w erin g G ucci’ s c o sts , De S ole o rd ere d p ric e c u ts o f 3 0 p erc en t p re tty m uch a cro ss t h e b oard . O fte n , EO P e x ecu tiv es str u ggle w ith th at d ecis io n. T hey e n dors e th e p rin cip le o f good v alu e, b ut w onder if a re d uctio n o f th at s iz e is re ally n ecessa ry fo r a co m pan y in s u ch d ir e s tr a its . I t w ould b e a h uge h it to a n a lr e ad y e n fe eb le d re v en ue lin e. “ M ay be la te r,” s o m e s a y , “ w hen th in gs a re b ette r. O r b y s o m e am ount l e ss t h an t h ir ty p erc en t.” But pric in g w as key to good valu e, an d im porta n t in attr a ctin g th e cu sto m ers G ucci w an te d . T he r e al d ow nsid e, D e S ole th ought, w ould b e not cu ttin g p ric es: T im id ity h ere w ould h av e d ulle d t h e e d ge o f t h e s tr a te g y. Ford ’s fir s t so lo c o lle ctio n in O cto ber 1 994 g en era te d little h eat. In h is vie w , it to ok h im a s e aso n to “ sh ak e o ff M ello ’s a n d M au riz io ’s in flu en ce an d c all u p h is o w n d esig n a esth etic .” 20 H is s e co nd c o lle ctio n, h ow ev er, in Marc h 1 995 b ro ught th e c o m pan y’s n ew p urp ose to lif e . N ot y our m oth er’s Gucci? N ot e v en c lo se . O n T om F ord ’s ru nw ay , th ere w asn ’t a s in gle flo ra l sc arf, p air o f e le g an t l o afe rs , o r c la ssic b la zer i n s ig ht. I n ste ad , w ild ly c o if fe d su perm odels sa sh ay ed se n su ously d ow n th e ru nw ay in h ip -h uggin g v elv et je an s, s k in ny s a tin s h ir ts w ith n eck lin es th at p lu nged to th e n av el, a n d c ar- fin is h m eta llic p ate n t b oots . Harp er’s B aza ar w ro te , “ T he e ffo rtle ss s e x uality of i t a ll h ad a c h ill f a cto r t h at j u st f ro ze t h e a u die n ce t o t h eir s e ats .” 21 By th e n ex t d ay th e sh ow ro om w as m obbed , an d th e G ucci b ra n d w as re b orn . Consis te n t w ith th e w is h es o f G ucci’ s o w ners , D e S ole to ok th e c o m pan y public i n O cto ber 1 995. J u st t h re e y ears l a te r, i n 1 998, t h e E uro pean B usin ess Pre ss fe d era tio n nam ed G ucci “E uro pean C om pan y of th e Y ear” fo r its eco nom ic an d fin an cia l perfo rm an ce, str a te g ic vis io n, an d m an ag em en t quality . 22 The f in an cia l p erfo rm an ce w as in deed r e m ark ab le . I n a r e p ort o n G ucci in 2001, Cre d it Suis se dubbed th e tu rn aro und “sp ecta cu la r,” notin g “a co m pound an nual opera tin g pro fit ex pan sio n of 54 perc en t on av era g e re v en ue g ain s o f 3 6 p erc en t o ver th e fiv e fis c al y ears to 3 1 Ja n uary 2 000. Togeth er w ith e arn in gs a ccele ra tio n o f 8 0 p erc en t d urin g th is p erio d, G ucci has d eliv ere d r e tu rn s o n c ap ita l o f r o ughly 3 4 p erc en t o n a v era g e, w ell a b ove its 1 0 p erc en t c o st o f c ap ita l.” 23 T he m ed ia n otic ed , to o. In a c o ver sto ry , “S ty le W ars ,” Tim e m ag azin e o pin ed th at “ D e S ole a n d T om F ord . . . p ulle d off a b ra n d re v iv al so re m ark ab le th at a n y lu xury g oods fir m a tte m ptin g a tu rn aro und is s a id to b e tr y in g to ‘d o a G ucci.’ ” 24 T he W all S tr e et J o urn al Euro pe d ecla re d th at G ucci w as “ th e h otte st n am e in lu xury g oods to day f o r fa sh io n-v ic tim s a n d f u nd m an ag ers a lik e.” 25 The B ig Q uestio n Work in g w ith F ord , D e S ole s u ccessfu lly r e b uilt t h e c o m pan y b ase d o n t h e purp ose h e s e t o ut in 1 995 : fa sh io n-fo rw ard , h ig h q uality , g ood v a lu e. B ut why w as D e S ole s u ccessfu l a n d M au riz io n ot? Dra w in g on th e sto ry of IK EA , one m ig ht guess th at D e S ole had a co m pellin g p urp ose an d M au riz io d id n ot, o r th at D e S ole ’s p urp ose w as so m eh ow b ette r t h an M au riz io ’s . B ut i t’ s h ard t o b la m e M au riz io ’s d re am f o r his fa ilu re . H e h ad w hat m ost o bse rv ers co nsid ere d a le g itim ate p urp ose : re tu rn G ucci to th e lu xury goods pin nacle it had once occu pie d . It’ s an ap pro ach — calle d “g oin g b ack to th e co re ”— th at’ s o fte n re co m men ded to co m pan ie s th at h av e lo st th eir w ay a n d m ay p ro fit b y r e tu rn in g to th eir r o ots an d w hat m ad e t h em s u ccessfu l i n t h e f ir s t p la ce. Furth er, M au riz io h ad c ap tu re d s o m e s m art, h ard -n ose d in vesto rs w ith h is passio n. “ A ll th e b an ks lo ved M au riz io a n d it w as a w onderfu l v is io n,” s a id In vestc o rp ’s R ic k S w an so n, 26 yet “th ere w ere no co nso lid ate d fin an cia l sta te m en ts — at le ast n ot at th e le v el w e’re u se d to — no d efin itiv e cen tr a l man ag em en t t e am , n o g uara n te es. B ut w hen h e s ta rte d t o s p in h is s to ry o f h is vis io n f o r G ucci, h e c h arm ed o th er p eo ple w ith h is d re am s.” 27 E ven D e S ole th ought th at th e b ig d re am s th at M au riz io w as p urs u in g w ere re aso nab le giv en t h e c o nte x t a n d r e so urc es M au riz io h ad a v aila b le a t t h e t im e. The d if fe re n ce w as n ot s o m uch in th e p urp ose e ach c h ose a s in w hat e ach man did w ith th e purp ose he esta b lis h ed . M au riz io ’s ch arm blin ded his in vesto rs to th e c o m pan y’s in te rn al d is a rra y a n d in ab ility to d eliv er o n h is pro m is e s. D e S ole , b y c o ntr a st, b uilt a n d e x ecu te d h is str a te g y in a tig htly lin ked s e rie s o f a ctio ns. C onsid er h ow e ach o f th ese s u pporte d th e r e d efin ed purp ose : Pro d ucts . To c o m ple m en t its le ath er g oods, G ucci c re ate d a lin e o f o rig in al, tr e n dy— an d, ab ove all, ex citin g— re ad y-to -w ear clo th in g each year, not as th e co m pan y’s m ain sta y , b ut as its d ra w . T he id ea w as th at fre q uen t fa sh io n ch an ges i n c lo th in g w ould h elp t h e w orld f o rg et a ll t h ose c o unte rfe it b ag s a n d Gucci to ile t p ap er. “ G ucci h ad to g et th e m essa g e o ut,” D e S ole e x pla in ed , “th e re al m essa g e th at G ucci h ad c h an ged , th at it w as m ore e x citin g, m ore fa sh io n-fo rw ard . W e c o uld n’t h av e g otte n th at le v el o f e x cite m en t a ro und le ath er b ag s.” 28 Bra n d. One aim of th e in cre ase d fo cu s on fa sh io n w as to pro pel th e co m pan y overn ig ht in to a n ew b ra n d id en tity , g en era tin g th e k in d o f e x cite m en t th at would b rin g n ew c u sto m ers in to th e s to re s— where th ey w ould b e s o ld n ot ju st th e la te st c lo th in g, b ut a ls o h ig h-m arg in h an dbag s a n d a ccesso rie s. A s a Cre d it S uis se a n aly st p ut it: “ T he r e ad y-to -w ear c o lle ctio n is a s h ow case f o r th e G ucci id en tity a n d lif e sty le . It u nif ie s G ucci’ s v ario us p ro duct lin es a n d gen era te s pre ss an d ed ito ria l co vera g e, th us se rv in g as a pow erfu l co m munic atio n v eh ic le f o r t h e b ra n d.” 29 Sto res. To s u pport th e n ew fa sh io n a n d b ra n d s tr a te g ie s, D e S ole a n d F ord w alk ed th ro ugh th e s to re s, d ecid in g to d itc h M au riz io ’s c lu bby “ liv in g ro om ,” w ith its h eav y c ab in ets a n d b ev ele d g la ss, f o r a c le an , m odern l o ok. W hat c h an ged was m ore th an s to re d éco r. A s fa sh io n ite m s g re w in im porta n ce, c u sto m er su pport in th e s to re s w as u pgra d ed , to o. “ S ellin g re ad y-to -w ear w as a m ore in volv ed s a le th an s e llin g h an dbag s,” D e S ole s a id . “ It re q uir e d a d if fe re n t kin d of sa le sp ers o n.” 30 D e Sole an d Ford paid partic u la r atte n tio n to co m pan y-o pera te d s to re s, w hic h th ey re fu rb is h ed a n d m ore th an d ouble d in num ber— fro m 6 3 i n 1 994 t o 1 43 i n 2 000. 31 Mark etin g. To sp re ad th e w ord , D e S ole d ouble d a d vertis in g sp en din g, a n d b y 1 999, ad vertis in g a n d c o m munic atio n c o nstitu te d 7 p erc en t o f sa le s re v en ue. H e als o m ad e a c o nsc io us d ecis io n to le v era g e T om F ord a s a m ark etin g a sse t: “T om is a g ood-lo okin g m an ,” h e ex pla in ed . “B y m ak in g h im a fo rc e in fa sh io n w e c o uld h av e a f a ce f o r th e c o m pan y a n d a ccele ra te th e p ro cess o f gettin g th e w ord o ut.” 32 It w as n ot a d ecis io n th at w as w ith out ris k , b ut D e Sole f e lt t h at t h e c o m pan y n eed ed t h e e n erg y a s ta r c o uld b rin g. ( C om petito rs in tim e paid th e hig hest co m plim en t: A fte r Ford becam e th e fa ce an d em bodim en t o f G ucci— both d re ssin g a n d b efrie n din g c ele b ritie s lik e N ic o le Kid m an , G wyneth P altr o w , a n d T om a n d R ita H an ks— Louis V uitto n d id th e sa m e w ith M arc J a co bs a n d H erm ès w ith J e an P au l G au ltie r. 33 ) Supply c h ain . Unlik e th e m an y lu xury fir m s th at p ro duced th e m ajo rity o f th eir p ro ducts th em se lv es, G ucci r e lie d o n a n etw ork o f s u pplie rs t o m an ufa ctu re m ost o f i ts pro ducts . B ut, w hen c ash w as tig ht a n d p ay m en ts e rra tic , m an y s u pplie rs h ad dro pped G ucci. D e S ole h im se lf d ro ve t h e h illy b ack r o ad s o f T usc an y, w here most w ere lo cate d , a n d ta lk ed to e ach o ne. H e r e cap tu re d th e b est a n d le t th e re st g o. F or t h e b est o f t h e b est, s o m e t w en ty -fiv e i n a ll, h e p ro vid ed f in an cia l su pport, te ch nic al tr a in in g, a n d a d vic e o n im pro vin g p ro ductiv ity . In re tu rn he d em an ded c o nsis te n t h ig h q uality a n d f a ste r, m ore d ep en dab le p ro ductio n. To s u pport th ese e ffo rts , h e b uilt a n e ffic ie n t lo gis tic s s y ste m a n d w on th e su pport o f I ta ly ’s in fa m ously to ugh u nio ns w ith th e f ir s t s y ste m o f in cen tiv e- base d b onuse s i n t h e b usin ess. As a re su lt, fix ed c o sts w en t d ow n, w hile e ffic ie n cy a n d th e fle x ib ility to sc ale p ro ductio n w en t u p— th e p erfe ct so lu tio n fo r m ain ta in in g a rtis a n sh ip quality w hile s la sh in g c o sts . Man agem en t. At th e to p of th e org an iz atio n, D e Sole an d Ford dev elo ped a clo se partn ers h ip . D e S ole w as re sp onsib le fo r th e o vera ll o pera tio ns o f th e fir m , an d F ord w as re sp onsib le fo r a n yth in g v is u al— fro m p ro duct d esig n to th e cre ativ e a sp ects o f a d vertis in g, p ublic re la tio ns, s to re d esig n, a n d c o rp ora te co m munic atio ns. 34 To o bta in t h e m an ag em en t a n d w ork fo rc e h e n eed ed t o s u pport a ll o f t h is , D e Sole re p la ced G ucci’ s tr a d itio nal fa m ily -b ase d m an ag em en t sy ste m , ra ck ed by p olitic s a n d in fig htin g, w ith o ne th at w as m erit b ase d a n d p erfo rm an ce fo cu se d . A fte r t h e c o m pan y s o ld s to ck t o t h e p ublic , m an ag ers w ere r e w ard ed with sto ck o ptio ns, a to ol u nav aila b le to m an y o f G ucci’ s p riv ate ly h eld co m petito rs . “ I g et a ll t h e b est p eo ple ,” D e S ole s a id a t t h e t im e. “ P eo ple l ik e work in g a t G ucci. A nd w e p ay t h em b ette r, t o o.” 35 In effe ct, ev ery th in g D e Sole did in desig n, pro duct lin eu p, pric in g, mark etin g, d is tr ib utio n, m an ufa ctu rin g, lo gis tic s, o rg an iz atio nal c u ltu re , a n d man ag em en t w as tie d tig htly to p urp ose . It w as a ll c o ord in ate d , in te rn ally co nsis te n t, a n d in te rlo ck in g, a s y ste m o f r e so urc es a n d a ctiv itie s th at w ork ed to geth er a n d r e in fo rc ed e ach o th er, a ll a im ed a t p ro ducin g p ro ducts th at w ere fa sh io n-fo rw ard , h ig h q uality , a n d g ood v alu e. The B ig I d ea The e sse n tia l d if fe re n ce b etw een M au riz io G ucci a n d D e S ole is th at a gre at purp ose is not a gre at str a te g y. A gre at str a te g y is m ore th an an asp ir a tio n, m ore th an a dre am : It’ s a sy ste m of va lu e cre a tio n, a se t of mutu ally r e in fo rc in g p arts . A nch ore d b y a c o m pellin g p urp ose , it te lls y ou where a c o m pan y w ill p la y , h ow i t w ill p la y , a n d w hat i t w ill a cco m plis h . It is e asy to se e th e b eau ty o f su ch a sy ste m o nce it’ s c o nstr u cte d — but co nstr u ctin g is n ’t alw ay s an easy or a beau tif u l pro cess. T he decis io ns em bed ded in s u ch s y ste m s a re o fte n g uts y c h oic es. F or e v ery m ovin g p art in th e G ucci u niv ers e , D e S ole h ad to d ecid e w hat h e b elie v ed w as th e c h oic e th at w ould sp ecif ic ally a d van ce th e p urp ose o f th e fir m . T his w as str ic tly bin ary m an ag em en t: E ith er t h e p artic u la r c o m ponen t a d van ced t h e p urp ose o f fa sh io n-fo rw ard ness, hig h quality , an d good valu e, or it w as re b uilt. Str a te g is ts c all s u ch c h oic es “ id en tity -c o nfe rrin g c o m mitm en ts ” — th ey r e fle ct what a n o rg an iz atio n s ta n ds f o r. T hey a re th e c h oic es th at a re c en tr a l to w hat a fir m is o r w an ts to b e. In D e S ole ’s case , m an y o f th ese ch oic es w ere sp onta n eo us, b ut th ey flo w ed fro m a c le ar u nders ta n din g o f w hat th e fir m was t r y in g t o a cco m plis h . Too m an y le ad ers , u nw illin g to g iv e u p a n y p ossib le a d van ta g e, ta k e th e easy ro ute a n d d odge o r d efe r th e to ugh d ecis io ns: “ L et’ s n ot g iv e u p o ur tr a d itio nal c u sto m ers w hile w e b rin g th e n ew o nes a lo ng.” N ot s o w ith D e Sole . H e w as w illin g t o m ak e t r a d e-o ffs . 36 E ach c h oic e h e m ad e th re ate n ed a lo ss e v en a s i t p ro m is e d a g ain — fo cu sin g o n n ew c u sto m ers , l o w erin g p ric es, le ttin g a lo t o f s u pplie rs g o. B ut, w ith e ach d ecis io n, h e w as a sse rtin g th at Gucci w as g oin g to b e o ne th in g a n d n ot a n oth er, a f o rm id ab le r e sp onsib ility mad e m ore d if fic u lt w hen d ealin g w ith a v ery s ic k c o m pan y. Yet th e c ris is a ls o m ad e s o m e th in gs e asie r b ecau se a ll th e d ecis io ns w ere more u rg en t. “ W hen a c o m pan y h as p ro ble m s, y ou h av e to m ove fo rw ard ,” De S ole s a id . “ T he c ris is re ally h elp ed u s o ut. Y ou’re m uch m ore lik ely to mak e a lo t o f c h an ges w hen th in gs a re b ad . W hen y ou a re tr y in g to r e su rre ct a c o m pan y, y ou h av e to m ove fo rw ard . Y ou c an ’t k eep lo okin g b ack . Y ou can ’t giv e peo ple a ch an ce to mak e ex cu se s. You hav e to ta k e re sp onsib ility .” 37 Syste m s lik e th e o ne D e S ole p ut in p la ce a n sw er th e q uestio n: H ow a re you g oin g to d eliv er o n y our p ro m is e ? T hey a re th e c ritic al fir s t ste p s in tr a n sla tin g a n id ea in to a s tr a te g y a n d p av in g th e w ay fo r its re aliz atio n. D e Sole ’s f in ely tu ned , ta ilo r-m ad e s y ste m m ad e it p ossib le f o r h im to c arry o ut his p urp ose . M au riz io d id n’t h av e s u ch a s y ste m — he h ad a l o t o f s h oot- fro m – th e-h ip g ra n d a ctio ns th at d id n’t w ork in c o ncert; in w ard ly f o cu se d , h e g re w in cre asin gly o ut o f s y nc w ith th e re ality in w hic h h e w as o pera tin g. U nlik e De S ole w ith fa sh io n, h e h ad n o d ev ic e, o th er th an h is la v is h s p en din g, to ch an ge p eo ple ’s p erc ep tio ns o r b oost t h eir w illin gness t o p ay . H e h ad n o w ay to c o ver th e fir m ’s in cre asin g c o sts . H e h ad fe w , if a n y, s c arc e re so urc es to underg ir d h is s tr a te g y a n d s ta v e o ff c o m petitio n. The ro le o f sc arc ity is p artic u la rly easy to o verlo ok in a str a te g y. B ut with out it a fir m m ay h av e a n in te rn ally c o nsis te n t sy ste m b uilt a ro und a n in te re stin g in novativ e id ea, o nly to s e e it q uic k ly im ita te d a t th e f ir s t s ig ns o f su ccess. W arre n B uffe tt r e fe rs t o t h is k in d o f s c arc ity a s a n “ eco nom ic m oat,” a b arrie r th at k ee p s o th er c o m petitio n a w ay . T he b ig ger a n d d eep er th e m oat, th e m ore attr a ctiv e he fin ds th e co m pan y as an in vestm en t. For so m e co m pan ie s, th at m oat m ig ht b e p hysic ally u niq ue a sse ts , s u ch a s o il a n d g as pro pertie s, m in era l rig hts , re al e sta te lo catio ns, o r p ate n ts . L arg e c o m pan ie s may h av e su ch m assiv e sc ale th at o th ers c an ’t su rp ass th em . (T hin k W al- Mart o r M ic ro so ft.) O th ers m ay h av e in ta n gib le re so urc es, su ch a s b ra n ds, th at a re b uilt o ver tim e a n d d if fic u lt to d uplic ate . (F or in sta n ce, a n a d ult’ s lo ng-liv ed a sso cia tio ns w ith th e D is n ey b ra n d o r a n a th le te ’s fe elin gs a b out Gato ra d e.) O th er d is tin ctiv e c o m ponen ts m ay b e c ap ab ilitie s o r r o utin es th at are j u st t o o c o m ple x f o r o th ers t o d is e n ta n gle o r r e co nstr u ct. When I a sk E O P e x ecu tiv es w hic h o f t h ese k in ds o f r e so urc es t e n d t o s h ore up m ost o uts ta n din g s tr a te g ie s, t h ey ’re l ik ely t o p ic k t h e f ir s t t w o— physic ally uniq ue asse ts o r th ose re la tin g to h uge eco nom ic sc ale . B ut, in fa ct, th e re so urc es th at a re p artic u la rly v alu ab le in m ost str a te g ie s a re th e la st tw o: in ta n gib le re so urc es s u ch a s b ra n ds a n d c o rp ora te re p uta tio ns, a n d c o m ple x org an iz atio nal cap ab ilitie s an d ro utin es th at are vita l to a fir m ’s dis tin ctiv en ess y et r e la tiv ely s c arc e a n d d if fic u lt to im ita te . D e S ole ’s G ucci boasts b oth : th e p ow erfu l in ta n gib le o f th e r e sto re d G ucci b ra n d, a n d a h ig h- perfo rm an ce cu ltu re , desig n cap ab ility , netw ork of sk ille d su pplie rs , an d in te rn atio nal d is tr ib utio n p la tf o rm a n ch ore d b y c o m pan y-ru n sto re s. A ll o f th ese a re v alu ab le i n t h eir o w n r ig ht, a n d b ooste d G ucci’ s c o m petitiv en ess. Knittin g a ll th ese in div id ual c o m ponen ts to geth er a n d d riv in g th em to w ard a c o m pellin g p urp ose i s t h e f in ely h oned s y ste m o f v alu e c re atio n. W hen t h ey ex is t, s u ch s y ste m s th em se lv es a re a m ong a f ir m ’s m ost im porta n t r e so urc es. In th e b est o f c ase s, th ey h av e a ll th e q ualitie s th at m ak e a r e so urc e v alu ab le : They a re im porta n t to c o m petitiv e a d van ta g e; th ey a re u niq uely ta ilo re d a n d in s h ort s u pply ; a n d th ey a re d if fic u lt to im ita te b ecau se o f th eir c o m ple x ity an d t h e w ay t h ey d ev elo p o ver t im e. One r e v ealin g m easu re o f th e v alu e D e S ole c re ate d w ith h is s y ste m — not only fo r th e G ucci bra n d, but als o as a pla tf o rm fo r ex pan sio n— was a ta k eo ver a tte m pt. I n t h e m id -1 990s, w hen I n vestc o rp w as t r y in g t o s e ll G ucci, Bern ard A rn au lt, head of L V M H (L ouis V uitto n M oët H en nessy ), w as unw illin g to p ay ju st $ 400 m illio n fo r th e c o m pan y. B ut in 1 999, L V M H beg an b uyin g sh are s in G ucci, a n d A rn au lt re p orte d ly o ffe re d b etw een $ 8 billio n a n d $ 9 b illio n fo r to ta l c o ntr o l o f th e fir m , a tw en ty fo ld in cre ase in fiv e y ears . De S ole fo ught back an d ev en tu ally fo und a w hite knig ht in P in au lt Prin te m ps R ed oute (la te r know n as P PR ), w hic h paid $3 billio n fo r 40 perc en t o f th e c o m pan y in 1 999 a n d a g re ed to in fu se a d ditio nal m oney fo r acq uis itio ns a n d e x pan sio ns. I n t h e b id din g w ar, G ucci’ s b usin ess m odel— its sy ste m of valu e cre atio n— was arg uab ly th e asse t valu ed m ost. “I lik e build in g t h in gs,” s a id F ra n ço is P in au lt, P PR ’s f o under. “ T his is th e c h an ce to cre ate a g lo bal g ro up.” 38 G ucci’ s s y ste m , s o c ritic al to its o w n c o m petitiv e ad van ta g e, c o uld s e rv e a s a p la tf o rm fo r a m ultib usin ess c o m pan y, e n ab lin g PPR t o a d d v alu e t o a h ost o f s im ila r b usin esse s. Sta rs a n d S tr a te g y But w hat a b out t h e w onderfu l g uys f ro m G ucci? A re n ’t th ey t h e c o m pan y’s most v alu ab le r e so urc e? T hey ’re th e o nes w ho tu rn ed G ucci a ro und. T hey ’re th e o nes w ho p ut t h e s y ste m i n p la ce. EO Pers a lw ay s g iv e D e S ole a n d F ord c re d it f o r m uch o f G ucci’ s s u ccess, an d w ell th ey s h ould . T here is n o d oubt th at D e S ole a n d F ord in div id ually an d a s a t e am c re ate d e n orm ous a m ounts o f v alu e f o r t h e f ir m . B ut t o i d en tif y a co m pany’s v alu ab le r e so urc es, o ne h as to lo ok f a rth er th an in div id uals , n o matte r h ow ta le n te d . A c o m pan y’s sto ry m ay sta rt w ith k ey p eo ple o r sta r pla y ers , b ut th ere h as to b e a lo t m ore to it. W hen P PR in veste d in th e co m pan y, th e a ll- s ta r D e S ole – F ord te am w as n o d oubt p art o f th e a ttr a ctio n —but p erh ap s n ot a s m uch a s y ou w ould th in k. W hen th e c o m pan y a cq uir e d Gucci’ s re m ain in g o uts ta n din g sh are s in 2 004, m ak in g it a w holly o w ned su bsid ia ry , D e Sole an d Ford ask ed fo r “ir o ncla d guara n te es fo r th eir man ag eria l f re ed om ” a n d a p le d ge to m ain ta in s e v era l in dep en den t d ir e cto rs on G ucci’ s s u perv is o ry b oard . T hough P PR p aid th em h an dso m ely — mak in g De S ole a n o ffe r th at w as “ ab ove h is e x pecta tio ns,” a cco rd in g to th e W all Str e et Jo urn al —it re fu se d to guara n te e th em th e in dep en den ce th ey wan te d . 39 T he tw o m en , w ho h ad m ad e m an y m illio ns o f d olla rs fro m th eir Gucci s to ck , l e ft t h e c o m pan y s h ortly t h ere afte r. There w as a n o utc ry fro m o bse rv ers w ho, lik e th e E O Pers , w ere s h ock ed an d d is m ay ed b y th e d ep artu re . B ut G ucci d id n’t c o lla p se ; in f a ct, s in ce th en th e f ir m h as h ad s o m e r e so undin gly s tr o ng p erio ds o f p erfo rm an ce, a n d s o m e weak er o nes a s w ell. W ould G ucci’ s p ath h av e b een b rig hte r if D e S ole a n d Ford had sta y ed ? M an y arg ue th at it w ould hav e been . B ut, m ore th an an yth in g, th e f ir m ’s a b ility to g o o n w ith out th em is te sta m en t to th e v alu e o f what t h ey b uilt. The E dge In a n in te rv ie w , I a sk ed D e S ole to c o m men t o n w hat h e c o nsid ere d h is most i m porta n t a ch ie v em en t a t G ucci. H is a n sw er: We m ade fa sh io n a re a l b usin ess. W e w ere to ugher. W e w ere m ore co m petitiv e. W e r e la unch ed th e c o m pany b ut w e a ls o h elp ed to c h ange th e u niv erse o f f a sh io n. I t u se d t o b e d om in ate d b y s m all, p riv a te , f a m ily – ru n c o m panie s th at o fte n w ere n ’t p ro fita ble . It to ok u s s e vera l y ea rs to get th ere , but w e sh ow ed th at yo u co uld m ake a lo t of m oney in fa sh io n. 40 De S ole a n d F ord d id n’t d o th at th ro ugh a f e w g ra n d g estu re s. T hey d id it th ro ugh a th oro ugh u nders ta n din g o f th e in dustr y , a c o here n t id ea o f w hat th ey w an te d G ucci to b e, a n d a f re n etic b ut d is c ip lin ed m arc h th ro ugh e v ery activ ity th at n eed ed to b e re b uilt a n d b ro ught in to lin e. “ L ik e e v ery th in g in lif e ,” D e S ole s a id , “ it w as a lo t o f little th in gs. W e w ere v ery a g gre ssiv e in esta b lis h in g p rio ritie s, a n d n eed ed t o a ct d ecis iv ely , q uic k ly .” Man y p eo ple b elie v e a str a te g is t’ s p rim ary jo b is th in kin g. It is n ’t. T he num ber-o ne jo b is s e ttin g a n a g en da a n d p uttin g in p la ce th e o rg an iz atio n to carry it o ut. “ S om e c o m pan ie s h av e g re at s tr a te g ie s a n d d o a lo t o f ta lk in g,” sa id D e S ole , “b ut th ey don’t get it done. I fo llo w th ro ugh. I call m y man ag ers a ll th e tim e to m ak e s u re th ey h av e e x ecu te d w hat th ey s a id th ey would d o.” 41 Every y ear, e arly in th e te rm , s o m eo ne in c la ss a lw ay s w an ts to e n gag e th e gro up in a d is c u ssio n a b out w hat’ s m ore im porta n t: s tr a te g y o r e x ecu tio n? I n my v ie w , it’ s a f a ls e d ic h oto m y, a w ro nghead ed d eb ate th at th ey th em se lv es hav e to re so lv e, an d I le t th em hav e th eir go at it. I alw ay s brin g th at dis c u ssio n u p ag ain at th e en d o f th e G ucci case , ask in g, “W hat h ere is str a te g y?” “ W hat is e x ecu tio n?” “ W here d oes o ne e n d a n d th e o th er b eg in ?” Ofte n th ere is n ’t a c le ar a n sw er— an d m ay be th at’ s a s it sh ould b e. W hat co uld b e m ore d esir a b le th an a w ell- c o nceiv ed s tr a te g y th at flo w s w ith out a rip ple i n to e x ecu tio n? Thin kin g o f s tr a te g y a s a sy ste m o f v a lu e c re a tio n , ric h in o rg an iz atio nal deta il a n d d riv en b y p urp ose , u nders c o re s th e p oin t. It’ s th e b rid ge b etw een lo fty i d eas a n d a ctio n. B ut w hile i t’ s e asy t o s e e i t i n c o m pan ie s l ik e G ucci o r IK EA , w hen a ll th e d eta ils a re la id o ut in f ro nt o f y ou, I k now f ro m w ork in g with th ousa n ds o f o rg an iz atio ns ju st h ow ra re it is to fin d a c are fu lly h oned sy ste m t h at r e ally d eliv ers . The p ro ble m s o fte n b eg in r ig ht a t t h e s ta rt. I f l e ad ers l a ck a c le ar i d ea a b out what th ey w an t th eir b usin esse s to b e, th ey c an not b uild c o here n t s y ste m s o f valu e c re atio n b ecau se th ey d on’t k now w hat th ey s h ould b e d esig ned to d o ex actly o r h ow th eir s u ccess s h ould b e m easu re d . T hat le av es th em to f id dle at t h e m arg in s o f s u ccess w ith g en eric ally g ood p ra ctic es s u ch a s “ sta te o f t h e art” sa le s m an ag em en t a p pro ach es o r T ota l Q uality M an ag em en t. 42 T hese may b e h elp fu l, b ut t h ey ’re n ot w hat w ill h elp y ou f in d a n e d ge a n d l iv e o n i t. You an d ev ery le ad er of a co m pan y m ust ask yours e lf w heth er your str a te g y is a r e al s y ste m o f v alu e c re atio n— a c le arly d efin ed p urp ose tig htly back ed b y a s e t o f m utu ally r e in fo rc in g p arts . If n ot, i t’ s t im e t o b uild o ne. T hat’ s t h e j o b t o b e t a ck le d n ex t. Chap te r 6 Own Y our S tr a te g y I T’S Y OUR T U RN . You’v e stu die d th e su ccesse s a n d se tb ack s o f M asc o , IK EA , a n d G ucci. Y ou k now th at ev ery b usin ess, ev ery o rg an iz atio n, n eed s a str a te g y. Y ou u nders ta n d th e im porta n ce o f a m ean in gfu l p urp ose an d a tig htly alig ned s y ste m o f v alu e c re atio n. N ow i t’ s t im e t o l o ok a t y our o w n c o m pan y. W hat’ s y our s tr a te g y? W hen I p ut t h is q uestio n t o t h e e n tr e p re n eu rs a n d p re sid en ts t o w ard t h e e n d o f o ur p ro gra m , m an y o f th em n od c o nfid en tly . B y th is p oin t w e h av e b een t a lk in g a b out str a te g y fo r a lo ng tim e a n d th ey h av e a g ood g ra sp o f th e p rin cip le s. A nd th ey ’v e re p eate d ly sh ow n th eir ab ility to id en tif y th e s tr e n gth s an d w eak nesse s in th e str a te g ie s of w ell- k now n an d cele b ra te d f ir m s— at a s a fe d is ta n ce. But w hen I p re ss th em to d esc rib e th eir o w n str a te g ie s, m an y str u ggle . B ey ond s o m ew hat s w eep in g s ta te m en ts , th ey o fte n h av e tr o uble a rtic u la tin g w hat t h eir b usin esse s a ctu ally d o o r w hat s e ts t h em a p art. T he i d eas c o m e o ut v ag ue; t h e s ta te m en ts t h ey w rite d ow n t e n d t o b e g en eric a n d u nin sp ir e d . It’ s a s tr u ggle b ecau se a n aly zin g y ours e lf is a lw ay s h ard er th an a n aly zin g s o m eo ne e ls e . T he c o ol o bje ctiv ity a n d c la rity y ou e n jo y a s a s p ecta to r o fte n g iv es w ay to u ncerta in ty a n d d oubt w hen y ou s ta rt to c o nfro nt th e r e ality o f y our o w n s itu atio n. W hile th e in te n se c la ss w ork e x pose s E O Pers to th e to ols o f s tr a te g y, fo r m an y th ere is a c h asm b etw een th eir u nders ta n din g o f h ow str a te g y w ork s a n d tr u ly b ein g s tr a te g is ts — lik e th e d if fe re n ce b etw een w ar g am es a n d w ar, b etw een r e ad in g a b out h ow t o s w im a n d a ctu ally s w im min g. The r e ality is th at it c an b e h ard to p ut s tr a te g ic th in kin g to w ork in o ne’s ow n b usin ess. M an ag ers o fte n sta rt o ff o n th e w ro ng fo ot, fa ilin g to th in k care fu lly a b out p urp ose , o r t h ey d on’t t a k e th e p ro cess f a r e n ough to s e e h ow all th e a ctiv itie s in th eir b usin esse s s u pport ( o r d on’t s u pport) th eir in te n ded dir e ctio n. S tu dyin g o th er c o m pan ie s’ d ile m mas a n d o th er m an ag ers ’ t r iu m phs is a g ood s ta rt, b ut i t’ s n ot e n ough. T o d ev elo p i n to a s u ccessfu l s tr a te g is t y ou must liv e th e e x perie n ce. Y ou m ust w re stle w ith th e s p ecif ic p urp ose o f y our co m pan y, fin d th e dif fe re n ces th at m atte r, defin e your sy ste m of valu e cre atio n, a n d p ull i t a ll t o geth er i n to a c o m pellin g s tr a te g y. There ’s o nly o ne w ay t o b eg in e ffe ctiv ely : w rite a ll t h ese t h in gs d ow n. Writin g im pose s a d is c ip lin e th at n o a m ount o f ta lk in g c an m atc h : I t g iv es str u ctu re to y our th in kin g. It fo rc es y ou to d efin e in care fu lly co nsid ere d word s w hat y our b usin ess e x is ts to d o a n d h ow e ach p art o f it c o ntr ib ute s to th e e ffo rt. O nce th at’ s la id o ut, y ou c an a n aly ze w hy th e w hole th in g w ork s or d oesn ’t a n d w hat c o uld m ak e i t s tr o nger. This is n ot a c asu al e x erc is e : Y ou w ill f in d y ours e lf v is itin g a n d r e v is itin g your w ork . A w in nin g s tr a te g y d oesn ’t j u st r is e u p o ut o f y our k ey board i n a n afte rn oon o r e m erg e f ro m a w eek en d r e tr e at w ith y our t e am . R ath er, f o r m ost le ad ers , it c o m es in to fo cu s o ver tim e, a s y ou a n aly ze a n d re fle ct o n y our busin ess a n d w ork t h ro ugh e ach s te p o f t h e p ro cess. 1 In a d ditio n to b uild in g y our str a te g ic sk ills , th e e x perie n ce h elp s y ou to cla rif y y our str a te g y fo r all o f y our sta k eh old ers . M an y co m pan ie s n ev er acco m plis h th is , in ste ad o ffe rin g u p g ra n d sta te m en ts o r eu phem is m s th at co nvey v ery little a b out th e b usin ess its e lf o r its p artic u la r re aso n fo r b ein g. As w e d is c u sse d th is in c la ss o ne d ay , o ne o f th e E O Pers to ld th e g ro up th at befo re co m in g to cam pus h e h ad lo oked u p th e w eb site s fo r all 1 70-p lu s co m pan ie s th at w ould b e re p re se n te d in th e p ro gra m . W hat h e fo und o fte n wasn ’t im pre ssiv e. V ery f e w , h e r e p orte d , g av e h im a c re d ib le s e n se o f w hat th e c o m pan y w as r e ally a b out— what m ad e it s p ecia l, o r w hy h e s h ould c are ab out i t. Oth er h an ds w en t u p; th ose p eo ple h ad d one th e s a m e th in g a n d c o m e to th e s a m e c o nclu sio n. T here w ere a lo t o f s o ber f a ces a ro und th e r o om a s th e messa g e s a n k i n . The in te rn al co sts o f u ncle ar str a te g ie s are , arg uab ly , ev en g re ate r. A s in fo rm atio n te ch nolo gy c o nsu lta n t J a m es C ham py n ote s, “ fe w c o m pan ie s a re ex plic it a b out th e fu tu re : in w hat m ark ets th ey w ill o pera te , h ow la rg e a n d quic k ly c an th ey g ro w , h ow w ill th ey d if fe re n tia te . . . .” T his v ag uen ess, h e sa id , le av es e m plo yees fe elin g c o m ple te ly in th e d ark , u nab le to a ccu ra te ly an tic ip ate th e fir m ’s fu tu re n eed s o r d o th eir jo bs w ell. In ste ad , th ey m ust re so rt to re ad in g th e te a le av es, tr y in g to g uess th e str a te g y b y an aly zin g man ag em en t’ s a ctio ns. 2 A c le arly d efin ed str a te g y ste ers th e c o m pan y, p ro vid in g a c o m pass fo r where y ou w an t to g o. It m ak es y ou a b ette r c o m munic ato r, g iv in g y ou th e word s to artic u la te w hat you are doin g an d w hy. Y our cu sto m ers an d in vesto rs w ill u nders ta n d y ou b ette r. Y our e m plo yees w on’t h av e to g uess what y ou’re u p to a n d th ey w ill k now h ow th eir w ork f its in to th e w hole a n d what w ill b e e x pecte d o f t h em . In th e E O P p ro gra m , th is s tr a te g y d ev elo pm en t p ro cess h as le d to d ra m atic in sig hts : S om e e x ecu tiv es c o m e to th e p ain fu l c o nclu sio n th at th ey n eed to je ttis o n a pro duct lin e or se ll a w hole busin ess; oth ers unco ver m is se d opportu nitie s o r s ta k e o ut n ew p ositio ns. T hre e c ase s i n b rie f: Dr. R ic h ard A ja yi, th e hea d of T he B rid ge C lin ic , N ig eria ’s fir st fo cu se d in -v itr o fe rtiliz a tio n clin ic , to ok en orm ous prid e in its hig h quality s ta ndard s a nd d iffe re n tia te d s e rv ic e. B ut, lo okin g c lo se ly a t h is exp erie n ce, h e r e a liz e d th at c u sto m ers w ho c o uld a ffo rd th e c o m pany’s pric es o fte n w en t o verse a s fo r c a re , w hile th ose in th e lo w to m id dle e n d of th e m ark et d id n’t u ndersta nd th e v a lu e o f th e sc ie n ce in vo lv ed a nd co uld n’t p ay th e p re m iu m p ric e. In re sp onse , A ja yi re d uced a ll co sts unre la te d to patie n t outc o m es, exp lic itly ben ch m ark ed th e clin ic ’s outc o m es o n th e h ig hest in te rn atio nal sta ndard s, a nd re ca st it a s h ig h quality b ut a ffo rd able h ea lth c a re w ith th e m otto : “ W e a re w ith in y o ur re a ch , m ake th e d ecis io n a nd g ra sp .” T he re p ositio nin g en able d th e clin ic to m eet th e need s of th ousa nds of patie n ts and gen era te d unpre ced en te d g ro w th . Geo ff P ic eu ’s gra ndfa th er fo unded U nite d P ain t and C hem ic a l in 1953, and th e co m pany gre w in to a so lid pla yer in th e auto m otiv e co atin gs i n dustr y . B ut i n t h e e a rly 2 000s, c o m petitio n i n t h e i n dustr y w as cu tth ro at. T he y o unger P ic eu , w ho h ad ta ken o ver b y th en , d esc rib ed t h e co m petitiv e la ndsc a pe a s “ a d is a ste r y o u w ould n’t w ant to h ea r a bout,” and M ic h ig an-b ase d U nite d w as str u gglin g to m ake a pro fit. P ic eu co nclu ded th at h is b est c h ance fo r s u rv iv a l w as to b eco m e th e lo w -c o st pro ducer. H avin g le a rn ed th at in nova tio n had a sh ort sh elf- life in auto m otiv e c o atin gs — it g ets c o m moditiz e d q uic kly — he a bandoned th e exp en siv e b asic r e se a rc h th at w as tr a ditio nal in th e in dustr y , c h oosin g in ste a d to adopt a “se co nd-to -m ark et” appro ach by acq uir in g in nova tio n a nd b ein g a f a st f o llo w er. H e a ls o r e sh aped o pera tio ns i n to a para gon of le a n m anufa ctu rin g. The new str a te g y ro ughly double d Unite d ’s pro ductiv ity re la tiv e to co m petito rs and le d to double -d ig it sa le s g ro w th . Eugen e M arc h ese , th e fo under o f a n A ustr a lia n a rc h ite ctu re fir m , w as co nsid erin g e xp ansio n to o th er r e sid en tia l s e g m en ts a nd g eo gra phie s in his h om e c o untr y . A t th e tim e, h ow ever, it w as n ot y et c le a r w hat th e fir m ’s u niq ue a dva nta ge w ould b e in th ose n ew m ark ets . In ste a d, h e decid ed to e xp and to 2 nd T ie r c itie s o verse a s w here h e c o uld le vera ge th e fir m ’s a w ard -w in nin g d esig ns fo r u rb an-c o ndom in iu m s a nd sh are perso nnel and oth er re so urc es acro ss tim e zo nes. Today, M arc h ese Partn ers h as o ffic es in c itie s r a ngin g fr o m S yd ney to S an F ra ncis c o to Guangzh ou, a nd p ro vid es its in nova tiv e d esig n s e rv ic es a nd c o m merc ia l se n sitiv ity t o l e a din g d evelo pers a nyw here i n t h e w orld . In a ll th ese c ase s, th e w ork b eg an b y r e v is itin g th e o rg an iz atio n’s p urp ose , a g ood p la ce t o s ta rt t h e e x am in atio n o f y our o w n b usin ess. ST A TE Y O UR P U RPO SE As w e dis c u sse d in ch ap te r 4, your co m pan y’s purp ose desc rib es th e uniq ue v alu e y our fir m b rin gs to th e w orld . It’ s th e th ro bbin g h eartb eat o f your str a te g y— th e gra n d pro nouncem en t of w ho you are an d w hy you matte r. It sh ould b e sp ecif ic an d easy to g ra sp b ecau se th e re st o f y our str a te g y f lo w s f ro m a n d s u pports t h is b eg in nin g. Too o fte n I s e e c o m pan ie s d esc rib e th eir p urp ose a s s o m eth in g lik e, The best c o m pany in X YZ in dustr y , sp ecia liz in g in sa tis fie d c u sto m ers , o r Our nonpro fit is c o m mitte d to im pro vin g th e q uality o f life in o ur c o m munity . O r th is : We w ill p ro vid e b ra nded p ro ducts a nd s e rv ic es o f s u perio r q uality a nd va lu e th at im pro ve th e liv es o f th e w orld ’s co nsu m ers, n ow a nd fo r gen era tio ns to co m e. As a re su lt, co nsu m ers w ill re w ard us w ith le a dersh ip sa le s, p ro fit a nd va lu e cre a tio n, a llo w in g o ur p eo ple , o ur sh are h old ers, and th e co m munitie s in w hic h w e liv e and w ork to pro sp er. 3 How c o uld y ou e v en g uess th at th e la st o ne is f ro m P ro cte r & G am ble , th e gia n t c o nsu m er p ro ducts c o m pan y? Contr a st t h at w ith s o m e o th er c o m pan ie s: __________: T o b rin g in sp ir a tio n a nd in nova tio n to e very a th le te in th e w orld . 4 __________ is b uilt u pon fin din g w ays to d o o nlin e s e a rc h b ette r a nd fa ste r in a n in cre a sin g n um ber o f n ew p la ces a nd in e ver m ore e ffic ie n t ways. 5 And t h is : The ______G ro up is th e only manufa ctu re r of auto m obile s and moto rc ycle s w orld w id e th at c o ncen tr a te s e n tir e ly o n p re m iu m s ta ndard s and outs ta ndin g quality fo r all its bra nds and acro ss all re le va nt se g m en ts . 6 Do y ou re co gniz e N ik e, G oogle , a n d B M W ? T hey e ach h av e a g ra sp o n why t h ey e x is t a n d w ho t h ey a re . What is your co m pan y’s purp ose ? Is it so m eth in g ev ery one in your co m pan y k now s? Som etim es a s lo gan c an b eg in to c ap tu re th e p urp ose — or a t le ast s ta rt th e dis c u ssio n— if it gets to th e fir m ’s uniq ue ad ded valu e. E O Per H . K err Tay lo r, f o under o f a H ousto n r e al e sta te f ir m c alle d A m REIT , to ld m e w here he g ot th e in itia l id ea fo r h is c o m pan y. A s a y oung m an v is itin g F lo re n ce, Ita ly , d urin g a p ost- g ra d uatio n to ur o f E uro pe, h e w as im pre sse d b y th e b ig , beau tif u l, m ultip urp ose b uild in gs o n a p la za th at h ouse d s h ops a n d o ffic es o n th e g ro und f lo or, a n d a p artm en ts a b ove. H e a sk ed a n o ld er g en tle m an s ittin g nex t to h im a t a c afé w ho th e o w ners w ere . “ T hese b uild in gs a re o w ned b y so m e o f th e w ealth ie st fa m ilie s o f Ita ly ,” th e m an to ld h im , e x pla in in g th at th ey w ere ra re ly , if e v er, so ld . “ T hat is h ow y ou p ass w ealth d ow n fro m gen era tio n t o g en era tio n.” Afte r e arn in g a n M BA a n d a la w d eg re e a n d re tu rn in g h om e to H ousto n, Tay lo r s e t o ut to tr y to b uild a p ortf o lio lik e th e o nes th at s u pporte d th ose wealth y Ita lia n fa m ilie s. B ecau se h is n asc en t c o m pan y w as s h ort o n c ap ita l, he in itia lly fo cu se d o n b uyin g a n d le asin g b ack g re at c o rn er p ro pertie s w ith one te n an t, s u ch a s b an k b ra n ch es o r r e sta u ra n ts . E ven tu ally h e m oved u p to en tir e sh oppin g cen te rs , all situ ate d o n p rim e co rn ers . A lo ng th e w ay h is co m pan y la tc h ed o n to a slo gan th at d esc rib ed its w ork : th e “ Irre p la ceab le Corn er” C om pan y. I t w as a p ow erfu l m onik er: “ W hen p eo ple s a w t h at o n o ur sig n, i t s tu ck w ith t h em ,” h e s a id . At th e tim e T ay lo r jo in ed E O P, h is b usin ess h ad h it a p la te au a fte r m ore th an tw o d ecad es o f g ro w th . A s h e b eg an to fo rm ula te a s tr a te g y s ta te m en t, he a n d h is e x ecu tiv e t e am e x perim en te d w ith d if fe re n t w ay s t o t e ll t h eir s to ry . This s e em in gly s im ple e x erc is e le d to m ajo r re v ela tio ns a b out th e n atu re o f th e b usin ess, a n d its d if fe re n ce th at m atte rs . W hen th ey p ut to geth er a c h art th at m ap ped th eir p ro pertie s a n d th ose o f th eir to p p eers ( o ver 8 00 p ro pertie s in a ll) , it w as c le ar th at A m REIT , th ough re la tiv ely sm all c o m pare d w ith in dustr y g ia n ts , w as a le ad er in f o cu sin g o n r e al e sta te n ear h ig h n um bers o f afflu en t h ouse h old s, a p ositio n th at w as p artic u la rly a ttr a ctiv e to b ig -m oney in vesto rs . U sin g 2 015 d em ogra p hic p ro je ctio ns, th e g ap b etw een th em a n d th eir p eers g re w e v en la rg er. O nly o ne o th er m ajo r r e al e sta te c o m pan y e v en cam e c lo se . As K err a n d h is t e am s tu die d t h e c h art a n d c h ew ed o n t h e l a n guag e i n t h eir str a te g y, th ey b eg an to a sk w hat “ T he Irre p la ceab le C orn er” re ally m ean t. Their e ffo rts to n ail d ow n th e f ir m ’s p urp ose , a n d to e ase its im ple m en ta tio n, dro ve th em m uch d eep er in to d efin in g th e k in d o f p ro pertie s th e c o m pan y would b uy, w here th ey w ould b e lo cate d , a n d h ow th ey w ould b e c h ose n . This y ie ld ed h ig hly s p ecif ic c rite ria : t h e c o rn ers w ould b e n ear l a rg e n um bers of h ouse h old s, e sp ecia lly a fflu en t o nes; n ear h ig h-tr a ffic ro ad s, a n d in a re as with d en se d ay tim e a n d n ig httim e p opula tio ns. Cry sta lliz in g th e c o m pan y’s p urp ose le d to a b ette r u nders ta n din g o f w hat mad e i ts a p pro ach d if fe re n t a n d e ffe ctiv e. I t c re ate d a p ositiv e f e ed back l o op. Not only did th e new dep th of deta il help th e co m pan y im pro ve its opera tio ns, T ay lo r s a y s, it a ls o h elp ed fit th e fir m ’s s tr a te g y to its p urp ose , te ll A m REIT ’s sto ry to em plo yees an d pote n tia l te n an ts , an d w in th e atte n tio n of in stitu tio nal in vesto rs w ho te n d to overlo ok a co m pan y of Am REIT ’s s iz e. To T ay lo r’s s u rp ris e , a g ood p art o f th e in itia l p ro cess w as a b out w ord s. “ I did n’t unders ta n d how im porta n t la n guag e w as, tr y in g to get th e w ord s co rre ctly so y ou co uld co m munic ate to o th ers an d, in th e p ro cess, re ally co m munic ate t o y ours e lf i n a c le ar w ay ,” h e s a y s. Am REIT ’s w ork f its th e d efin itio n o f c o rp ora te p urp ose th at J o hn B ro w ne, fo rm er C EO of B ritis h P etr o le u m , sp elle d out in an in te rv ie w w ith th e Harv a rd B usin ess R evie w : “ O ur p urp ose is w ho w e a re a n d w hat m ak es u s dis tin ctiv e. I t’ s w hat w e a s a c o m pan y e x is t to a ch ie v e. . . .” A s y ou w ork to id en tif y a n d d efin e th e p urp ose f o r y our o w n c o m pan y, d on’t s to p w ith y our fir s t id ea, b ut lik e T ay lo r, re fin e a n d c la rif y . T he m ore p re cis e ly y ou c an ex pre ss i t, t h e b ette r t h e a n ch or i t w ill b eco m e f o r d ev elo pin g y our s tr a te g y— an d, q uite p ossib ly , t h e m ore n ew i n sig hts y ou w ill g ain i n to y our b usin ess. DEV ELO P Y OUR S Y ST EM O F V ALU E C REA TIO N By now you know th at a co m pan y’s purp ose is ju st a beg in nin g. A s dis c u sse d in c h ap te r 5 , it g iv es y ou th e rig ht to p la y , a n d p uts y ou in th e gam e. B ut it d oesn ’t m ean y ou h av e th e rig ht to w in . J u st a s D e S ole m ad e su re th at e ach c o m ponen t o f th e G ucci e n te rp ris e — desig n, s o urc in g, s to re s, pro ducts , p ric in g, a n d s o o n— alig ned w ith th e c o m pan y’s p urp ose , s o m ust all o f y our activ itie s an d re so urc es w ork in co ncert to su pport y our o w n purp ose . You n eed to p in poin t w ho th e c u sto m er is e arly in th e p ro cess. B ut w hic h cu sto m er? It’ s n ot alw ay s th e en d u se r. L au ra Y oung jo in ed L eeg in , th e pre d ecesso r co m pan y of Brig hto n Colle ctib le s, in 1991, w hen it w as prim arily a se lle r of m en ’s belts , an d th e ow ner, Je rry K ohl, w an te d to ex pan d in to la d ie s’ le ath er goods. Sin ce th en , th e co m pan y has ad ded han dbag s, w alle ts , je w elr y , an d sh oes, cre atin g a sig nif ic an t nic h e as a boutiq ue sp ecia liz in g in w om en ’s m odera te ly p ric ed a ccesso rie s. B ut e v en now , with over $350 m illio n in an nual sa le s, Brig hto n re m ain s an unco nven tio nal c o m pan y. S till o w ned fu lly b y K ohl, th ere is n o b oard o f dir e cto rs , n o o rg an iz atio n c h art, a n d f e w f o rm al title s. K ohl a n d Y oung w ork to geth er a s p artn ers m an ag in g t h e c o m pan y. When Y oung b eg an to d efin e th e s tr a te g y f o r B rig hto n, s h e s tr u ggle d w ith where t h e c o m pan y’s f o cu s s h ould b e. T he q uestio n o f w ho t h e c u sto m er w as lo om ed la rg e: W as it th e en d co nsu m er, th e w om en w ho sn ap ped u p th e matc h in g p ie ces a n d s h are d t h eir f in ds w ith t h eir f rie n ds, i n w hat Y oung c alls “G ir lf rie n d M ark etin g”? W as it th e o w ners o f th e se v era l th ousa n d la rg ely fa m ily -o w ned s p ecia lty b outiq ues th at c arrie d B rig hto n’s a ccesso rie s o r th e sa le s a sso cia te s in th ose b outiq ues a n d in B rig hto n’s c o m pan y-o w ned s to re s? Or, w as i t t h e r o ughly o ne h undre d d ed ic ate d s a le s r e p re se n ta tiv es w ho c alle d on a ll t h ose s to re s? Each g ro up m atte re d , a n d e ach p la y ed a r o le i n B rig hto n’s u niq ue a p pro ach to th e m ark et. U ltim ate ly , Y oung decid ed th at th e peo ple w ho se ll its pro ducts — th e co m pan y’s sa le s re p re se n ta tiv es an d th e sto re s’ o w ners an d sa le s asso cia te s— were its cu sto m ers becau se th ey w ere th e ones w hose ded ic atio n c o uld m ost in flu en ce th e c o nsu m er’s p urc h ase d ecis io n. K eep in g th em h ap py, a n d t h eir w ork p ro fita b le , w as k ey t o B rig hto n’s o w n h ealth . So how does Y oung alig n B rig hto n’s opera tio ns— its sy ste m of valu e cre atio n— beh in d t h ese s a le sp eo ple ? To k eep m erc h an dis e f re sh a n d i n te re stin g f o r t h em , t h e c o m pan y m ak es “ a little b it o f a lo t o f th in gs,” ra th er th an h uge q uan titie s o f a fe w ite m s. T hat mean s th e re ta ile rs c an v ary th e c h oic es a n d g iv e th e w om en w ho b uy its pro ducts a lo t o f d if fe re n t o ptio ns to c h oose fro m . B rig hto n a ls o k eep s th e sa le s a sso cia te s e n gag ed w ith a s te ad y flo w o f c re ativ e m otiv atio nal e v en ts , se m in ars , a n d o th er o pportu nitie s to le arn a b out th e b ra n d. F or n early tw o decad es, Y oung an d K ohl hav e ta k en hundre d s of sto re opera to rs an d em plo yees o n tr ip s to L os A ngele s, H ong K ong, C hin a, T aiw an , a n d Ita ly where th ey to ur fa cto rie s, e at m eals to geth er, a n d h av e c o ntin uous tim e fo r co lla b ora tio n. “W e d o th in gs d if fe re n tly fro m o th er co m pan ie s in o ur in dustr y ,” sa y s Young. “W e m ak e su re w e re ach th e sa le s asso cia te s w ho are th e ones in te ra ctin g e v ery day w ith c u sto m ers . T here i s a r e al p assio n t o w hat w e d o. A re al sp ir it fo r th e bra n d.” F oste rin g th at sp ir it is cru cia l, sh e co ntin ues. “W ith out p assio n th e s a le s a sso cia te s c an ’t d o w hat th ey n eed to d o in th eir sto re s. T hey h av e to h av e a p oin t o f d if fe re n ce. T he c u sto m er h as to h av e a good e x perie n ce b ecau se s h e h as s o m an y o th er o ptio ns.” T hese d ay s th ose optio ns in clu de th e In te rn et. And— all re ta ile rs ta k e note — Brig hto n’s motiv ate d sa le s asso cia te s pro vid e so m eth in g you can ’t get onlin e. “T he cu sto m er n eed s to f e el g ood e v ery tim e s h e g oes in to th e s to re ,” s a y s Y oung. “S he n eed s to h av e a g re at sh oppin g ex perie n ce, an d a re al p ers o nal an d warm c o nnectio n w ith t h e s a le s a sso cia te w ho i s h elp in g h er.” Im porta n tly , B rig hto n a ls o p ro te cts th e b outiq ues b y r e fu sin g to s e ll to b ig dep artm en t s to re s s u ch a s M acy ’s , D illa rd ’s , a n d N eim an M arc u s. T hey h av e co m e co urtin g, b ut Y oung h as tu rn ed th em all aw ay , so m etim es se n din g flo w ers o r c o okie s w ith h er s in cere a p olo gie s t h at s h e w on’t d o b usin ess w ith th em . In re tu rn , B rig hto n m ak es a n u nusu al d em an d o f its re ta ile rs : It re q uir e s th em to s e ll a t a m in im um r e sa le p ric e in o rd er to p ro te ct th e in te g rity o f th e bra n d s o th at c u sto m ers k now th ey a re b ein g tr e ate d fa ir ly n o m atte r w here th ey s h op f o r B rig hto n. T he p ric in g p olic y a ls o a llo w s f o r s u ffic ie n t m arg in s fo r r e ta ile rs s o th at th ey c an p ro vid e th e g en ero us c u sto m er s e rv ic e, in -s to re am bie n ce, a n d sh oppin g a m en itie s th at a re sy nonym ous w ith th e B rig hto n bra n d. 7 It is s o c o m mitte d to th is a p pro ach th at w hen tin y K ay ’s K lo se t in su burb an D alla s in sis te d o n d is c o untin g th e lin e a n d to ok B rig hto n to c o urt, th e co m pan y fo ught b ack . A fte r th e U .S . C ourt o f A ppeals fo r th e F if th Cir c u it ru le d in K ay ’s fa v or, citin g decad es of pre ced en ts , th e co m pan y ap peale d to th e U .S . S upre m e C ourt, w hic h s id ed w ith B rig hto n’s p oin t o f vie w . In so d oin g, B rig hto n c h an ged th e la n dsc ap e o f A m eric an re ta ilin g: T he decis io n o vertu rn ed a n in ety -s ix -y ear-o ld p ie ce o f th e S herm an A ntitr u st A ct an d to ld c o urts th at m an ufa ctu re rs a n d d is tr ib uto rs s o m etim es c o uld , in f a ct, in sis t on m in im um pric es, so lo ng as th e effe cts of su ch polic ie s, as in Brig hto n’s case , are pro -c o m petitiv e. 8 A lth ough th e co m pan y has gro w n co nsid era b ly sin ce th en a n d n ow in clu des m ore th an 1 60 c o m pan y-o w ned Brig hto n C olle ctib le s s to re s, m ain ta in in g m in im um r e ta il p ric es o n its g oods re m ain s a c o rn ers to ne o f i ts s tr a te g y. To b eg in to c ap tu re th ese d ecis io ns a n d th e ro le th ey p la y in B rig hto n’s sy ste m o f v alu e c re atio n, o r w hat Y oung lik es to c all “ th e s e cre t s a u ce,” w e co uld m ak e a lis t o f th e c o m pan y’s v ario us o pera tio ns a n d h ow th ey w ork in co ncert to su pport th e co m pan y’s purp ose . For in sta n ce, th e tr ip s w ith boutiq ue o w ners a n d th e fu ll- p ric e p olic y a re k ey p arts o f th e c o m pan y’s mark etin g e ffo rts . T he p ro duct r a n ge, s a le s a n d d is tr ib utio n c h an nels a re p art of th e sy ste m to o, as are th e co m pan y’s in fo rm atio n te ch nolo gy sy ste m s, opera tio ns, h um an re so urc es, an d fin an ce fu nctio ns. T hey all su pport th e sa m e goals w ith activ itie s th at are co nsis te n t an d sp ecif ic to B rig hto n’s ap pro ach . TH E S T R ATEG Y W HEEL To v is u aliz e a n d r e co rd h ow a s y ste m o f v alu e c re atio n b ack s u p a f ir m ’s purp ose , I u se a tim e-h onore d ap pro ach th at h as co m e to b e k now n as a “str a te g y w heel.” As w e s a w in th e G ucci c ase in c h ap te r 5 , th e s tr a te g y w heel p ro vid es a pic tu re o f how y ou w ill w in . T he p urp ose in th e c en te r s a y s w hy y ou e x is t— what y ou d o d if fe re n tly o r b ette r th an o th ers — an d th e u niq ue c o nfig ura tio n of a ctiv itie s a n d re so urc es a ro und th e rim sh ow s w hat w ill e n ab le y ou to deliv er o n t h at p ro m is e . B rig hto n’s s tr a te g y d oes t h is w ell. Each sy ste m of valu e cre atio n, an d th us each str a te g y w heel, w ill be dif fe re n t, b ecau se e v ery o rg an iz atio n h as its o w n p urp ose a n d u niq ue s e t o f activ itie s t h at d riv e t h at p urp ose . E ven t h e h ead in gs a ro und t h e r im w ill d if fe r acro ss fir m s— fo r ex am ple , w hile R & D w ill b e im porta n t in o ne fir m , in an oth er i t w ould n’t e v en a p pear o n t h e w heel. The p oin t o f t h is w ork i s n ’t a b out “ ch eck in g b oxes” o r “ g ettin g a ll t h e w ay aro und t h e w heel.” I t’ s a b out s p en din g t im e t h in kin g a b out y our b usin ess a n d ch alle n gin g y ours e lf to s e e w hat’ s r e ally th ere — an d e v en m ore , e n vis io nin g what co uld be th ere . Ju st pen cilin g in w hat you do in fin an ce, hum an re so urc es, R & D, o r a n y o th er f u nctio n in a m ech an ic al w ay is n ’t lik ely to b e help fu l; id en tif y in g a b unch o f p la in -v an illa a ctiv itie s a ro und a p la in -v an illa purp ose w on’t l e av e y ou a n y b ette r o ff t h an y ou a re t o day . Rath er, w hen it w ork s b est, th e p ro cess is a lo t lik e p uttin g to geth er a jig sa w p uzzle . E ach p ie ce m ust w ork w ith th e o th ers , c o m in g to geth er to cre ate a p ic tu re o f w hat y our b usin ess c an b e. T he re al w ork a n d th e re al pay off c o m e w hen y ou’re a sse rtiv e, w hen y ou p ush th e e n velo pe a n d a sk : What w ould w in nin g re ally ta k e? H ow c o uld th is e le m en t d o m ore fo r u s? What c o uld w e d o d if fe re n tly if w e n arro w ed o ur f o cu s to o ne ty pe o f ta rg et cu sto m er? G ra d ually , a s y ou d efin e a n d re fin e, y ou s h ould b eg in to id en tif y not ju st w hat y ou d o b ette r a n d w ors e th an th e o th er g uy, b ut w hat a sp ects o f your c o m pan y— fro m y our c u sto m er b ase to w hat y ou d o fo r th em — mak e you diffe re n t , a n d t r u ly g iv e y ou a n e d ge, o r c o uld d o s o . As P hilip pin e e n tr e p re n eu r A m ab le “ M ig uel” A guilu z IX d ev elo ped h is str a te g y w heel, h e b eg an to se e h is b usin ess in a h olis tic w ay . In 2 002, Aguilu z s ta rte d I n k f o r L ess to p ro vid e a c h eap er a lte rn ativ e to O EM p rin te r cartr id ges— so re ly n eed ed in a co untr y w ith p er-c ap ita in co m e o f ro ughly $2,6 00 a t th e tim e. T oday th e c o m pan y s e lls a v ast v arie ty o f in k a n d to ner cartr id ges, to ners , do-it- y ours e lf re fill kits , co ntin uous fe ed sy ste m s, an d re la te d p ro ducts a n d s e rv ic es. T he d om in an t s u pplie r in th e P hilip pin es, In k fo r L ess h as m ore t h an 6 00 o utle ts a n d a n e x pan din g f ra n ch is e o pera tio n. At th e cen te r o f A guilu z’s str a te g y w heel is th is w ell- c ra fte d an d cle ar purp ose : “ R ead ily a v aila b le a n d r e lia b le 1 00% q uality in k r e fills a n d s e rv ic e at c o m petitiv e p ric es.” B uild in g th e s y ste m a ro und it le d h im to re co nsid er how e v ery e le m en t o f th e b usin ess c o uld c o ntr ib ute to th e w hole . P ric in g, o f co urs e , is c ru cia l. H is c u sto m ers c u rre n tly m ig ht p ay $ 6 to $ 8 to r e fill a $ 25 or $ 30 c artr id ge o r a b out $ 16 to r e fill a $ 75 to ner c artr id ge. S o A guilu z p ay s sp ecia l atte n tio n to ele m en ts , su ch as lo gis tic s, th at affe ct his co sts . H is peo ple s c o ur t h e r e g io n f o r q uality i n ks a t g ood p ric es. “ W hen I s ta rte d , I w as buyin g b ottle s o f in k,” h e sa y s. “ N ow I a m b uyin g fif te en to ns o f in k p er month . T hat sh ow s you th e pow er of volu m e I can co m man d w ith m y su pplie rs .” S ale s c o sts a re im porta n t, to o; A guilu z w ork s h ard to k eep th em in th e s in gle d ig its . T his d is c ip lin e a ro und c o sts h as g iv en h im th e f le x ib ility to d riv e h is p ric es l o w er t o r e sp ond a g gre ssiv ely t o c o m petitiv e t h re ats . W hen a f ra n ch is e e o f a n A ustr a lia n c h ain c am e i n to h is m ark et, f o r e x am ple , h e w as ab le t o r e sp ond b y d ra m atic ally l o w erin g h is p ric es a t n earb y s to re s. Refillin g in k cartr id ges is n ’t an esp ecia lly hig h-te ch opera tio n. Nev erth ele ss, A guilu z re aliz ed th at re se arc h a n d d ev elo pm en t h ad to b e a co rn ers to ne o f h is s tr a te g y. W ith out it h e w ould n’t b e a b le to s ta n d u p to th e prin te r m an ufa ctu re rs , o r c o nte n d w ith m om -a n d-p op c o m petito rs , w ho m ig ht ch arg e le ss th an h e d oes. F or e x am ple , p rin te r m an ufa ctu re rs tr y to fo il in k re fille rs b y c o ntin ually r e d esig nin g c artr id ges a n d c h an gin g w here th ey h id e th e e n tr y h ole s. In re sp onse , A guilu z’s R & D c re w b uys e v ery s in gle p rin te r an d e v ery s in gle c artr id ge a s it c o m es to m ark et s o th ey c an r e v ers e -e n gin eer th em a n d fig ure o ut h ow th ey w ork . W hen p rin te r m ak ers a d ded a c h ip th at sh uts d ow n th e p rin te r if th e c artr id ge is n ’t n ew , h is R & D p eo ple w ork ed with t h eir s u pplie rs a ro und A sia t o l e arn h ow t o a d d a c o unte r-c h ip s o t h at t h e re fille d c artr id ge w ould w ork . T hese e ffo rts n ot o nly k eep In k fo r L ess in busin ess, th ey en ab le it to pro vid e bette r se rv ic e th an le ss so phis tic ate d pla y ers . B ulle tin s a n d v id eo s a re s e n t re g ula rly to th e s to re s, a le rtin g o utle t man ag ers an d te ch nic ia n s to new cartr id ges an d new pro cesse s, so th at noth in g c u sto m ers b rin g i n w ill s tu m p t h em . Over tim e, A guilu z a n d h is s ta ff h av e b uilt o ut c asc ad in g s e ts o f a ctiv itie s fo r ev ery sp oke on th e w heel (s e e, fo r ex am ple , H um an R eso urc es an d Tra in in g). T hey re v is it th em fre q uen tly to m ak e c h an ges th at h elp In k fo r Less m ain ta in o r in cre ase its le ad in th e m ark et. A guilu z o fte n r e tu rn s to th e str a te g y w heel o n h is o w n— so m etim es s p en din g a f u ll d ay w ork in g th ro ugh th e im plic atio ns o f a p artic u la r a ctio n, s u ch a s a p ric in g c h an ge, g oin g f ro m sp oke t o s p oke t o s e e w hat a d ju stm en ts n eed to b e m ad e t o k eep t h e w heel i n alig nm en t. His rig or p ay s o ff. In 2 008, th e P hilip pin es J u nio r C ham ber In te rn atio nal nam ed A guilu z its “ C re ativ e Y oung E ntr e p re n eu r” o f th e y ear. O ver th e la st nin e y ears , In k fo r L ess’s s a le s h av e g ro w n a t a n a v era g e a n nual ra te o f 1 5 perc en t, a n d p ro fits h av e g ro w n e v en fa ste r. B ut In k fo r L ess is n ot o nly cap tu rin g v alu e fo r its e lf ; it is m ak in g its cu sto m ers b ette r o ff th an th ey would h av e b een i f t h e f ir m w ere n ’t t h ere . REA LIT Y C H EC K You w ill lik ely h av e to m ak e a n um ber o f a ssu m ptio ns in b uild in g y our wheel. C heck th em care fu lly ! P eo ple in all p ro fe ssio ns g o astr a y b ecau se th ey ’re opera tin g on unte ste d assu m ptio ns. In str a te g y, th ese are ofte n a re cip e f o r d is a ste r. B e r u th le ss i n c h alle n gin g w hat y ou th in k y ou k now . It’ s p artic u la rly e asy to m ak e th is m is ta k e w hen it c o m es to th e lin kag e betw een y our s ta te d p urp ose a n d y our s y ste m o f v alu e c re atio n— is it re ally desig ned to do w hat you sa y , an d is it w ork in g? T oo ofte n , I’v e se en ex ecu tiv es cla im th eir co m pan ie s are hig h-e n d, dif fe re n tia te d co m pan ie s se ek in g to m ak e a d if fe re n ce b y o ffe rin g cu sto m ers n ot lo w er p ric es, b ut bette r-th an -a v era g e g oods. T hey h av e e v ery th in g l in ed u p— ex cep t c u sto m ers who s h are th at v ie w a n d a re w illin g to p ay a p re m iu m fo r th eir p ro ducts o r se rv ic es. R em em ber h ow M au riz io G ucci sta k ed th e co m pan y’s fu tu re o n to p-o f-th e-lin e p ro ducts th at cu sto m ers sta y ed aw ay fro m in d ro ves? T he lin kag e s im ply w asn ’t t h ere . To a sse ss w heth er w hat y ou a re d oin g is w ork in g, y ou n eed to lo ok f o r th e data a n d th e f a cts , a n d n ot ju st r e ly o n in tu itio n. W hat e v id en ce d o y ou h av e th at y ou a re th e lo w -c o st p ro vid er o r th e p re m iu m p ro ducer y ou s a y y ou a re ? Where , e x actly , in th e p ro cess d o y ou a d d v alu e? C an y ou s u pport th at v ie w with fa cts — in te rn al pro cess m easu re s of key perfo rm an ce driv ers , an d outc o m e m easu re s lik e s a le s re su lts , p ro fit m arg in s, m ark et s h are , o r re tu rn on i n vestm en t? Consid er h ow W alte r d e M atto s d oes th is . A lo ngtim e B ra zilia n jo urn alis t, he fo unded L an ce! S ports G ro up in 1 997 to c ap tu re h is fe llo w s p orts fa n s’ obse ssio n w ith th eir fa v orite s o ccer te am s. S in ce th en it h as g ro w n fro m a daily sp orts n ew sp ap er in tw o c itie s to fiv e m ore e d itio ns p lu s m ag azin e, te le v is io n, m obile , a n d W eb v ers io ns t h at g iv e L an ce! a n atio nal p la tf o rm a n d mak e i t t h e l a rg est s p orts n ew s o rg an iz atio n a n d l e ad in g a u th ority i n B ra zil. Em bed ded in d e M atto s’s str a te g y w heel is a se lf -re in fo rc in g sy ste m o f ele m en ts : M ultita sk jo urn alis ts pro vid e uniq ue co nte n t to a varie ty of pla tf o rm s, d riv in g re ad ers h ip . L arg e re ad ers h ip , in tu rn , b rin gs in re g io nal an d n atio nal a d vertis e rs . B oth th e d ep th a n d b re ad th o f s o ccer c o vera g e a n d th e siz e o f th e c ir c u la tio n se rv e a s b arrie rs to e n tr y , m ak in g it h ard er fo r co m petito rs t o m ak e i n ro ad s. T o f o cu s r e so urc es o n h is s tr e n gth s a n d m an ag e co sts , h e o uts o urc es d is tr ib utio n o f th e p rin t n ew sp ap er a n d w ork s w ith a n ex te rn al d esig n f ir m . De M atto s a sse sse s w heth er t h e i n div id ual p arts o f t h e s y ste m a re w ork in g, an d in sy nc, b y lo okin g a t sp ecif ic , ta n gib le re su lts : e stim ate d re ad ers p er week ( 2 .3 m illio n in 2 011); u niq ue w eb site v is ito rs ( 7 50,0 00 a d ay , s o m e o f whom c h eck th e s ite m ore th an o nce); a n d c o st p er s to ry ( lo w er th an a p ure te le v is io n p ro ducer o r n ew sp ap er p ublis h er b ecau se c o nte n t is s h are d a cro ss th e W eb , p rin t, a n d v id eo o utle ts ). O ver th e la st f iv e y ears , th ese c o lle ctiv ely gav e L an ce! o ne o f th e h ig hest ra te s o f g ro w th an d re tu rn o n in vestm en t am ong B ra zilia n m ed ia c o m pan ie s. What d o y our m etr ic s te ll y ou a b out y our str a te g y? A re th ey c o nsis te n t with y our r h eto ric ? D o t h ey s h ow t h at y ou a re w in nin g w ith y our p la n ? PU LLIN G I T A LL T O GETH ER Afte r y ou’v e i d en tif ie d y our p urp ose , a lig ned y our a ctiv itie s a n d r e so urc es, an d te ste d th e re su lts — all in te rn al w ork in g ste p s— you are re ad y to su m mariz e y our str a te g y in a sta te m en t y ou c an u se to c o m munic ate th at co m mitm en t b oth in sid e a n d o uts id e y our f ir m . Y ou d on’t n eed to u se f o rm al la n guag e o r a n y p artic u la r f o rm at; th e m ost im porta n t g oal is c o nvey in g y our uniq ue a sp ects a n d a d van ta g es w ith s p ecif ic a n d e n gag in g w ord s. Here are th re e ex am ple s of m em ora b le str a te g y sta te m en ts fro m w ell- know n o rg an iz atio ns. C an y ou t e ll w ho t h ey a re ? A h ote lie r: ________ is ded ic a te d to perfe ctin g th e tr a vel exp erie n ce th ro ugh co ntin uous in nova tio n a nd th e h ig hest sta ndard s o f h osp ita lity . F ro m ele g ant s u rro undin gs o f th e fin est q uality , to c a rin g, h ig hly p ers o naliz e d 24-h our s e rv ic e, _ _______ e m bodie s a tr u e h om e a w ay fr o m h om e fo r th ose w ho k n ow a nd a ppre cia te th e b est. T he d eep ly in stille d _ _______ cu ltu re is p erso nifie d in its e m plo yees— peo ple w ho s h are a s in gle fo cu s and a re i n sp ir e d t o o ffe r g re a t s e rv ic e. Founded in 1960, ________ has fo llo w ed a ta rg ete d co urse of exp ansio n, o pen in g h ote ls in m ajo r city cen tr e s a nd d esir a ble re so rt destin atio ns a ro und th e w orld . C urre n tly w ith 7 5 h ote ls in 3 1 c o untr ie s, and m ore t h an 3 1 p ro pertie s u nder d evelo pm en t, _ _______ w ill c o ntin ue to le a d th e h osp ita lity in dustr y w ith in nova tiv e e n hancem en ts , m akin g busin ess t r a vel e a sie r a nd l e is u re t r a vel m ore r e w ard in g. 9 A m ag azin e: Edite d in L ondon s in ce 1 843, _ _______ is a w eekly in te rn atio nal n ew s and busin ess public a tio n, offe rin g cle a r re p ortin g, co m men ta ry and analy sis on world cu rre n t affa ir s, busin ess, fin ance, sc ie n ce and te ch nolo gy, c u ltu re , s o cie ty , m ed ia a nd th e a rts . A s n ote d o n its c o nte n ts page, _ _______’s g oal is to “ ta ke p art in a se vere co nte st b etw een in te llig en ce, w hic h p re sse s fo rw ard , a nd a n u nw orth y, tim id ig nora nce obstr u ctin g our pro gre ss.” Prin te d in fiv e co untr ie s, world w id e cir c u la tio n i s n ow o ver o ne m illio n, a nd _ _______ i s r e a d b y m ore o f t h e world ’s p olitic a l a nd b usin ess l e a ders t h an a ny o th er m agazin e. 10 An acco m pan yin g d ocu m en t d esc rib es its ed ito ria l p olic y , in clu din g its fie rc e co m mitm en t to in dep en den ce an d its pra ctic e of bein g w ritte n an onym ously , w ith n o b ylin es, to m ak e it a p ap er “ w hose c o lle ctiv e v oic e an d p ers o nality m atte r m ore t h an t h e i d en titie s o f i n div id ual j o urn alis ts .” A n onpro fit: ________ i s a n i n te rn atio nal m ed ic a l h um anita ria n o rg aniz a tio n c re a te d by d octo rs a nd jo urn alis ts . . . . T oday, _ _______ p ro vid es in dep en den t, im partia l a ssis ta nce in m ore th an 6 0 c o untr ie s to p eo ple w hose s u rv iv a l is th re a te n ed by vio le n ce, neg le ct, or ca ta str o phe, prim arily due to arm ed c o nflic t, e p id em ic s, m aln utr itio n, e xclu sio n fr o m h ea lth c a re , o r natu ra l d is a ste rs. . . . _ _____ a ls o re se rv es th e rig ht to sp ea k o ut to brin g a tte n tio n to n eg le cte d c ris e s, c h alle n ge in adeq uacie s o r a buse o f th e a id sy ste m , a nd to a dvo ca te fo r im pro ved m ed ic a l tr e a tm en ts a nd pro to co ls . 11 You p ro bab ly re co gniz e th e F our S easo ns R eso rts , th e E co nom is t , an d Docto rs W ith out B ord ers f ro m l a n guag e t h at i s c lo se ly l in ked w ith t h em , l ik e “h ig hest sta n dard s of hosp ita lity ,” “co nte st betw een in te llig en ce an d ig nora n ce,” a n d “ in dep en den t, i m partia l a ssis ta n ce.” B ey ond t h at, t h ough, a re pre sc rip tiv e e le m en ts th at d efin e th eir a d van ta g es, d esc rib e w hat th ey s ta n d fo r, a n d t e ll y ou s o m eth in g i m porta n t a b out h ow t h at w ork w ill b e d one. There a re p le n ty o f h ote ls a ro und, f o r i n sta n ce, b ut F our S easo ns d efin es i ts se rv ic e c u ltu re a s a u niq ue a ttr ib ute th at g iv es it a s tr a te g ic d if fe re n ce. T here are ple n ty of m ag azin es as w ell, but m an y are la n guis h in g w hile th e Eco nom is t , w ith its fie rc e in dep en den ce, in cis iv e co m men ta ry , an d tim ely re p ortin g, g ain s g ro und. T he D octo rs W ith out B ord ers s ta te m en t m ak es c le ar th at th e N obel Peace Priz e– w in nin g org an iz atio n doesn ’t ju st pro vid e im partia l m ed ic al a ssis ta n ce; i t a ls o a d vocate s f o r c h an ge. To b re ak th e p ro cess d ow n f u rth er, a g ood s tr a te g y s ta te m en t a rtic u la te s a co m pan y’s p urp ose , its m ean s o f c o m petitio n, a n d its u niq ue a d van ta g es b y an sw erin g th e m ost b asic q uestio ns a b out w hat a c o m pan y d oes a n d h ow it does i t: • W ho w e s e rv e • W ith w hat s o rt o f p ro ducts o r s e rv ic es • W hat w e d o t h at’ s d if fe re n t o r b ette r • W hat e n ab le s u s t o d o t h at And i t h as t h ese q ualitie s: • I t i s r e aso nab ly s h ort a n d p ars im onio us. • I t i s s p ecif ic . • I t s ta te s w hat t h e c o m pan y d oes a n d w hy i t m atte rs i n a w ay t h at a n yone c an su m mariz e w ith out h av in g t o q uote i t l ite ra lly . • It a v oid s ja rg on, s u ch a s “ b est o f b re ed ,” “ b est in c la ss,” o r v ag ue w ord s su ch a s su perio r , exp ert, a n d em pow ere d . • I t i s a ffir m in g, b ut n ot g ra n dio se o r s e lf -im porta n t. • P eo ple e asily r e co gniz e t h at i t’ s y ou. The s ta te m en t s h ould b e b rie f b ecau se b re v ity f o rc es y ou to g et to th e v ery heart o f w hat y ou w an t t o s a y w ith out l a rd in g u p y our d esc rip tio n w ith e m pty word s o r s u perla tiv es. M ak e e v ery w ord r e al. M ak e e v ery w ord c o unt. L ong se n te n ces an d v ag ue la n guag e can o bsc u re y our effo rt to d esc rib e w hat’ s re ally im porta n t. A t best, th ey ’re unhelp fu l; at w ors t, th ey ’re pote n tia lly mis le ad in g a n d d is tr a ctin g. If y ou f e el y our c o m pan y’s s tr a te g y is to o c o m ple x to s u m mariz e in o ne o r tw o p ara g ra p hs, th at’ s lik ely a sig n th at th e str a te g y its e lf is u ncle ar, o r co nvolu te d i n s o m e w ay . There is n o q uestio n th at k eep in g th e s ta te m en t s h ort a n d to th e p oin t is hard w ork . W hen a n e d ito r o nce a sk ed M ark T w ain fo r a tw o-p ag e sh ort sto ry in tw o d ay s, T w ain r e p lie d w ith o nly m ild e x ag gera tio n: “ N o c an d o 2 pag es tw o d ay s. C an d o 3 0 p ag es 2 d ay s. N eed 3 0 d ay s to d o 2 p ag es.” E ven if you are n ’t very w ord y, you’ll fin d th at a good brie f sta te m en t ta k es re v is io n a n d p olis h . The g oal, m ore o ver, is n ot to w rite a s ta te m en t th at s o unds g ood: It’ s to write a sta te m en t th at is good, th at re ally cap tu re s your co m pan y’s dis tin ctiv en ess. O nce y ou’v e w ritte n a n d re w ritte n it, s h op it a ro und. D on’t sh ow it ju st to th ose w ho w ork f o r y ou o r k now th e b usin ess w ell; g iv e it to acq uain ta n ces w ho d on’t r e ally k now w hat y ou d o. A sk p eo ple to r e p hra se it in th eir o w n w ord s. A nd d on’t b e s u rp ris e d if w hat’ s m ir ro re d b ack to y ou is n ’t w hat y ou in te n ded . T hat’ s h elp fu l fe ed back . Y our str a te g y sta te m en t sh ould b e a b le to tr a v el o n its o w n— with out in te rp re ta tio n a n d w ith out y ou th ere t o c o ach t h e r e ad er ( o r t h e e m plo yee, c u sto m er, b an ker, o r c asu al v is ito r to y our w eb site ) o n w hat i t “ re ally m ean s.” Here ’s t h e s tr a te g y s ta te m en t c o nstr u cte d b y d e M atto s f o r L an ce! To b e t h e p rim e s o urc e o f 2 4-h our-a -d ay v ib ra nt s p orts n ew s t a rg etin g an a udie n ce o f p assio nate , y o ung, m ale B ra zilia n s p orts f a ns b y: • Em plo yin g 300 sp orts m ulti- ta sk jo urn alis ts to pro vid e exclu siv e co nte n t; • U sin g th e m ost c u rre n t te ch nolo gy to d eliv er c o nte n t a cro ss th e w id est num ber o f m ed ia p la tfo rm s ( p rin t, w eb , m obile , W eb T V a nd w eb r a dio ); • A nd u sin g c o m pellin g d esig n t o e n hance a ll L ance! p ro ducts ; • A ll u nder a p ow erfu l c o re b ra nd, L ance! • A s a m ea ns to b eco m e o ne o f th e m ost p ro fita ble B ra zilia n m ed ia gro ups a s m ea su re d b y R O I. And th is , in a v ery d if fe re n t v oic e, is h ow A guilu z c o nstr u cte d th e s tr a te g y sta te m en t f o r I n k f o r L ess: In k fo r L ess a sp ir e s to b e th e la rg est a nd m ost p ro fita ble p ro fe ssio nal in k r e fillin g b usin ess b y p ro vid in g • T he b est a nd l a te st i n k r e fill q uality a nd s e rv ic e • A t r e a so nable p ric es • T o o ur q uality c o nsc io us b ut p ric e s e n sitiv e in div id ual c o m pute r u se rs and s m all a nd m ed iu m s c a le b usin ess a nd g overn m en t i n stitu tio ns • Thro ugh co nven ie n tly -lo ca te d in k re fillin g sta tio ns th ro ughout th e majo r c itie s a nd k ey t o w ns i n t h e P hilip pin es a nd t h e r e st o f A sia . If y ou’re fru str a te d w ith y our s tr a te g y o r w ith y our s ta te m en t, k eep a t it. Writin g a b ad s tr a te g y s ta te m en t is o fte n th e n ecessa ry p re lu de to w ritin g a good o ne. O fte n w hat’ s re q uir e d is n ot ju st w ord sm ith in g— it’ s “str a te g y- sm ith in g”— becau se w hat y ou w an t is a s tr o ng, m ean in gfu l s tr a te g y, n ot ju st pre tty w ord s. A s w ith m an y k in ds o f w ritin g, th e w ord s th em se lv es u su ally are n ’t t h e p ro ble m ; t h e c h alle n ge i s t h e t h in kin g t h at g oes b eh in d t h em . Hallm ark s o f G rea t S tr a te g ie s Anch ored b y a c le a r a n d c o m pellin g p urp ose It is s a id th at “ if y ou d on’t k now w here y ou’re g oin g, th ere is n ’t a r o ad th at c an g et y ou th ere .” O rg an iz atio ns s h ould e x is t f o r a r e aso n. W hat’ s y ours ? Add r ea l v alu e Org an iz atio ns th at h av e a d if fe re n ce th at m atte rs a d d v alu e. If a n y o f th em w ere to g o aw ay , t h ey w ould b e m is se d . W ould y ours ? Cle a r c h oic es Excelle n ce c o m es fro m w ell- d efin ed e ffo rt. A tte m ptin g to d o to o m an y th in gs m ak es it dif fic u lt t o d o a n y o f t h em w ell. W hat h as y our b usin ess d ecid ed t o d o? T o n ot d o? Tailo red s y ste m o f v alu e c rea tio n The fir s t ste p in g re at e x ecu tio n is tr a n sla tin g a n id ea in to a sy ste m o f a ctio n, w here effo rts a re a lig ned a n d m utu ally re in fo rc in g. D oes th is d esc rib e y our b usin ess? In m ost co m pan ie s, t h e t r u e a n sw er i s n o. Mea n in gfu l m etr ic s Glo bal o utc o m e m easu re s lik e R O I in dic ate w heth er a str a te g y is w ork in g, b ut k ey perfo rm an ce d riv ers , t a ilo re d t o y our o w n s tr a te g y, a re a b ette r i n dic atio n. T hey b re ak b ig asp ir a tio ns i n to s p ecif ic , m easu ra b le g oals , a n d g uid e b eh av io r t o w ard w hat m atte rs . Passio n It’ s a s o ft c o ncep t, b ut it’ s a t th e h eart o f e v ery g re at s tr a te g y. E ven in th e m ost m undan e in dustr ie s, c o m pan ie s t h at s ta n d o ut c are d eep ly a b out w hat t h ey d o. TH E R O AD A H EA D This ex erc is e sh ould hav e cla rif ie d your th in kin g an d giv en you an obje ctiv e, h ard l o ok a t y our b usin ess. If y ou’v e b een h onest w ith y ours e lf , y our th oughtf u l a n aly sis w ill lik ely hav e bro ught to th e su rfa ce pro ble m s th at sh ould be fix ed or are as th at re q uir e n ew a tte n tio n— th e b re ad -a n d-b utte r w ork o f a l e ad er-s tr a te g is t. S om e of th e p ro ble m s m ay b e s e rio us: Y ou m ay n eed to r e co nfig ure p arts o f y our org an iz atio n, o r f in d n ew w ay s to d is tin guis h y ours e lf . I n th e w ors t c ase , y ou may h av e c o m e to th e p ain fu l re aliz atio n th at y ou s h ould e x it p art o r a ll o f your b usin ess. T his c an b e e sp ecia lly h ard w hen it’ s c lo se to y our h eart fo r one r e aso n o r a n oth er. Kerr T ay lo r h ad to c o nfro nt su ch a n is su e w hen h e re ev alu ate d h is re al esta te busin ess in th e G re at D ow ntu rn of 2008. Y ears befo re , w hen th e co m pan y w as to o b ig to re ly o n frie n ds a n d fa m ily b ut s till to o s m all to ta p in stitu tio nal in vesto rs , he se t up a bro ker-d eale r to help fu nd re al esta te purc h ase s. H e g ot th e ap pro pria te se cu ritie s lic en se s an d so ld in te re sts to in vesto rs , f u ndin g th e f ir s t $ 25 m illio n o f th e c o m pan y’s g ro w th . “ I c o uld n’t fin d a n oth er w ay t o d o i t,” h e s a y s. Lik e m an y c o m pan ie s, A m REIT h ad to c u t b ack w hen th e e co nom y t u rn ed so ur. B y th en T ay lo r h ad su ccessfu lly ra is e d m oney fro m th e p ublic an d th ro ugh b ig f in an cia l c o m pan ie s, a n d th e b ro ker-d eale r n o lo nger o ffe re d th e co m pan y a s tr a te g ic a d van ta g e. F urth er, th e f u nds n eed ed to o pera te it c o uld be p ut to b ette r u se . E ven s o , h e w as s till e m otio nally a tta ch ed , “ b ecau se it was w hat h ad b ro ught u s a lo ng.” The d ow ntu rn an d th e ex perie n ce o f cla rif y in g h is co m pan y’s str a te g y fin ally p ush ed h im to sh ut th e b usin ess d ow n. “ It w as o ne o f th e h ard est th in gs I e v er d id ,” h e s a y s. “ T hat c am e o ut o f th is jo urn ey . . . a n d it’ s s till sc ary . B ut i t m ad e u s g ro w u p.” The p ro cess c an a ls o s tr e n gth en n ew s tr a te g ic th ru sts , a s M ig uel A guilu z dis c o vere d . A fte r a n um ber o f b ig b usin esse s a sk ed h im fo r a n in k re fillin g pro gra m , h e c am e u p w ith a p la n fo r In k fo r L ess P ro fe ssio nal. In itia lly h e was te m pte d to s im ply ta ck it o n to I n k f o r L ess a s a “ b y-th e-w ay ” b usin ess. But o n re fle ctio n, h e c o nclu ded th at if h e d id n’t c re ate a w hole n ew s y ste m aro und it, a n y c o m petito r w ho c am e in a fte r h im a n d f o cu se d e x clu siv ely o n busin ess c u sto m ers w ould q uic k ly u nderc u t h im . Tellin g Y ou r S to ry : M is ta k es S tr a te g is ts M ak e Care fu lly h oned str a te g ie s a n d th e sta te m en ts th at c ap tu re th em se t d ir e ctio n, e sta b lis h prio ritie s, a n d g uid e a ctiv ity w ith a fir m . T hey a ls o h elp y ou c o m munic ate y our sto ry ex te rn ally . W eak s tr a te g ie s a n d w eak s ta te m en ts d o t h e o pposite . A void t h ese p itf a lls . 1. G en eric s ta te m en ts Sim ply sa y in g y ou a re in b ook p ublis h in g, ste el fa b ric atio n, o r sp orts m ark etin g te lls little . W ith in th at d om ain , w hat m ak es y ou d is tin ctiv e? A sk y ours e lf th is : If th ey re ad your s tr a te g y s ta te m en t, w ould y our c u sto m ers re co gniz e y ou? W ould y our e m plo yees? Pix ar d id n’t s a y it m ad e m ovie s— it s a id it d ev elo ped “ co m pute r-a n im ate d fe atu re film s with m em ora b le ch ara cte rs an d h eartw arm in g sto rie s th at ap peal to au die n ces o f all ag es.” 2. N o t r a d e-o ffs You c an ’t b e e v ery th in g to e v ery body, a lth ough a lo t o f w eak str a te g ie s a n d str a te g y sta te m en ts i m plic itly c la im t o b e. I t d oesn ’t w ork . 3. E m pty c lic h és Gra n d s ta te m en ts u nsu pporte d b y c re d ib le d eta il a re v acu ous. T erm s s u ch a s “ E xcelle n t,” “L ead in g,” an d “O uts ta n din g” don’t sa y an yth in g sp ecif ic . S tr a te g y sta te m en ts gain cre d ib ility w hen s p ecif ic s ta te m en ts c ap tu re w hat a f ir m d oes p artic u la rly w ell. 4. F org ettin g t h e m ea n s Man y w eak s ta te m en ts e ag erly t e ll y ou t h e what b ut f o rg et t h e how —th e c ritic al a ctiv itie s an d re so urc es th at e n ab le th e fir m to re aliz e its c o m petitiv e a d van ta g e. It is th ro ugh th e how th at a re ad er g ain s c o nfid en ce a b out w hat y ou’re d oin g. W hic h d o y ou fin d m ost co nvin cin g: “ W e’re th e lo w -c o st p ro ducer,” o r “ W e’re th e lo w -c o st p ro ducer o pera tin g th e w orld ’s l a rg est t ita n iu m d io xid e p la n t u tiliz in g D uP ont’ s p ro prie ta ry t e ch nolo gy”? 5. L ea vin g o u t t h e c u sto m er Who y ou s e rv e i s a c ru cia l p art o f y our s to ry . I t n ot o nly d efin es y our p la y in g f ie ld ; i t a ls o sa y s w ho w ill u ltim ate ly d ecid e w heth er w hat y ou d o r e ally m atte rs . 6. D ea d ly d ull There i s n o o th er w ay t o s a y i t: A l o t o f s tr a te g y s ta te m en ts i n t h eir i n itia l d ra fts d ro ne o n, with out c o nvic tio n, w ith out in sp ir a tio n. A sk y ours e lf : W ould y ou w an t to w ork fo r th is co m pan y? W ould y ou w an t t o b uy f ro m i t? This in sig ht c am e to h im a s h e w ork ed h is w ay th ro ugh a n in itia l s tr a te g y wheel fo r In k fo r L ess P ro : T he a ctiv itie s in th e sp okes a n d so m e o f th e sp okes th em se lv es w ere m ark ed ly dif fe re n t fro m his co nsu m er busin ess. Em plo yees w ould hav e to lo ok m ore pro fe ssio nal, w earin g neck tie s, fo r in sta n ce. H e w ould n eed to o ffe r n ew p ay m en t te rm s, to s y nc w ith c o m pan y pro cu re m en t s y ste m s. T o p ro vid e g re at s e rv ic e (a n d c re ate a d if fe re n ce), h e dete rm in ed , e ach c u sto m er s h ould h av e a “ sta n dby r e fillin g t e ch nic ia n ,” t o b e av aila b le w hen n eed ed . A s a r e su lt, t h e p ro ducts a n d s e rv ic es w ould b e p ric ed dif fe re n tly . A nd h e w an te d to cre ate an oth er m ark et ad van ta g e b y g iv in g co m pan ie s p rin te rs f o r f re e in e x ch an ge f o r a tw o-y ear in k c o ntr a ct, n ot o nly co verin g h is e q uip m en t c o sts b ut a ls o k eep in g c o m petito rs a t b ay . T he P ro busin ess i s n ow l a u nch ed a n d g ro w in g. This w ay o f th in kin g h as b eco m e s e co nd n atu re f o r A guilu z. “ It’ s n ot ju st fo r b ooks,” h e s a y s. “ E very tim e I th in k o f a n ew b usin ess, I re ally d o th e str a te g y w heel,” to u nders ta n d “ h ow I c an d ev elo p m y a d van ta g e.” A s h is busin esse s c h an ge o r f a ce n ew c o m petitio n o r o th er c h alle n ges, h e g oes b ack to th e w heel a n d e x am in es th e w hole s y ste m , re co gniz in g th at a s ig nif ic an t ch an ge i n a n y p art o f i t i s l ik ely t o h av e i m plic atio ns f o r t h e r e st. In deed , w hen th e p ro cess w ork s b est, a w ell- d efin ed str a te g y is lik e th e North S ta r, guid in g you in th e rig ht dir e ctio n no m atte r w hic h w ay th e co m petitiv e w in ds a re b lo w in g. A t L an ce!, W alte r d e M atto s h as fo und th at str o ng m ark et s h are a n d s iz ab le m arg in s h av en ’t p ro te cte d th e c o m pan y f ro m co m petitio n o n a ll s id es. T he W orld C up i s h ead in g t o B ra zil i n 2 014, a n d t h e co untr y w ill h ost th e 2 016 O ly m pic s, b oth o f w hic h sh ould b e a d re am opportu nity fo r L an ce!— ex cep t th at th e e v en ts h av e s p aw ned n ew c o vera g e fro m a n um ber o f n ew p la y ers , a ll c o m petin g f o r t h e s a m e a d vertis in g d olla rs . Hab its a re c h an gin g, to o. H is b usin ess w as b uilt o n q uality w ork p ro duced by a te am of sp ecia liz ed jo urn alis ts . A s he w atc h es re ad ers peru se th e In te rn et, d e M atto s s a id , “ p eo ple a re g oin g to s e v en o r e ig ht m ed ia o utle ts in th e s p ace o f te n m in ute s,” re ad in g s o m an y d if fe re n t s h ort s to rie s th at th ey can ’t re m em ber w hat th ey re ad o r w here th ey re ad th em . “ W hen y ou se e th in gs lik e th at, y ou h av e to q uestio n y our b elie fs ” ab out w hat k in ds o f in fo rm atio n p eo ple w an t, h e s a id . “ I h av e b een q uestio nin g m y b elie fs v ery much l a te ly .” There is “ a lo t o f te m pta tio n to c h an ge y our s tr a te g y w hen s o m eth in g lik e th at h ap pen s,” h e s a id , b ut h e d oesn ’t th in k a fu ndam en ta l c h an ge is c alle d fo r. In ste ad he is fin e-tu nin g w hat he calls “g ap s” aro und th e w heel in fin an ce, h um an r e so urc es, a n d t e ch nolo gy t o s tr e n gth en L an ce!’s c ap ab ilitie s. The fir m re m ain s c o m mitte d to b ein g th e p rim e so urc e o f sp orts n ew s fo r Bra zil t w en ty -fo ur h ours a d ay , o ver a ll k in ds o f m ed ia p la tf o rm s. Your str a te g y, to o, if it is w ell c o nceiv ed a n d o n p oin t, w ill g uid e y ou th ro ugh tu m ultu ous m ark ets , c o m petitiv e c h alle n ges, a n d y our p ush in to n ew are n as. I t w ill t e ll y ou w hat r e so urc es y ou n eed t o b uild u p a n d w hat b ag gag e you s h ould le t g o. M ore fu ndam en ta lly , a s y ou p ut p urp ose in th e c en te r o f your str a te g ic th in kin g, y ou w ill se e a sh if t in th e w ay y ou lo ok a t e v ery opportu nity . Y ou w ill fin d y ours e lf in stin ctiv ely ask in g w heth er th at n ew busin ess, c u sto m er, o r p ro duct a d ds v alu e, w heth er it re ally fits w ith w hat you a re d oin g, a n d w heth er it b en efits fro m o r e n han ces th e b usin ess a s a whole . O nly t h en w ill y ou t r u ly o w n y our s tr a te g y. Even s o , y ou w ill c o ntin ually h av e t o a d ap t. S hif ts in t h e e co nom y, i n y our in dustr y , o r i n y our o w n s h op m ay f o rc e y ou t o r e co nsid er y our a p pro ach a n d may be e v en r e in ven t i t. A s w e w ill s e e i n t h e n ex t c h ap te r, t h at’ s w hy t h e j o b of t h e s tr a te g is t i s n ev er r e ally f in is h ed . Chap te r 7 Keep I t V ib ra n t W HEN Y OUR ST R A TEG Y is on pap er, pain sta k in gly cra fte d , re v is e d , an d p olis h ed , y ou’ll n o d oubt f e el a h uge s e n se o f a cco m plis h m en t. Y ou’ll h av e a g am e p la n . Y ou’ll k now w here y ou’re g oin g a n d w hy. M ost m an ag ers w ho g o th ro ugh th is r ig oro us s tr a te g y e x erc is e b re ath e a s ig h o f r e lie f a t th e e n d. M y se n se is th at m an y o f th em e n d u p th in kin g, “ I’v e fig ure d it o ut. I’m t h ro ugh. T he o nly t h in g l e ft t o d o i s t o p ut i t i n to g ear.” It’ s n ot s u rp ris in g th at y ou o r th ey m ig ht th in k th is w ay . In m ost p opula r p ortr a y als th e str a te g is t’ s jo b w ould se em to b e fin is h ed o nce a care fu lly a rtic u la te d str a te g y h as b een m ad e re ad y fo r im ple m en ta tio n. T he id ea h as b een fo rm ed , th e n ex t s te p s s p ecif ie d , th e p ro ble m s o lv ed . B ut, a s I te ll th e E O Pers , don’t get co m fo rta b le yet! R are ly can str a te g y be so neatly c o nta in ed . T here w ill a lw ay s b e s o m e c h oic es th at w ere n ot o bvio us. T here w ill a lw ay s b e c o untle ss c o ntin gen cie s, g ood a n d b ad , th at c o uld n ot h av e b een fu lly an tic ip ate d . T here w ill alw ay s b e lim its to co m munic atio n an d m utu al u nders ta n din g. A s O sc ar W ild e q uip ped , “O nly th e sh allo w k now t h em se lv es.” A t heart, m ost str a te g ie s, lik e m ost peo ple , in volv e so m e m yste ry . In te rp re tin g th at m yste ry is an ab id in g re sp onsib ility of a str a te g is t. S om etim es th is e n ta ils c la rif y in g a p oin t o r h elp in g a n o rg an iz atio n tr a n sla te a n id ea in to p ra ctic e, su ch a s w hat “ b est in c la ss” w ill re ally m ean in th at c o m pan y a n d h ow it w ill b e m easu re d . O th er tim es it e n ta ils m uch m ore : r e fa sh io nin g a n e le m en t o f t h e s tr a te g y, a d din g a p re v io usly m is sin g p ie ce, o r r e co nsid erin g a c o m mitm en t t h at n o l o nger s e rv es t h e c o m pan y w ell. It is s im plis tic — dan gero us, e v en — to th in k th at th e b ulk o f s tr a te g y w ork c an b e d one a t th e b eg in nin g a n d th at a ll a str a te g is t h as to d o is g et th at an aly sis rig ht. G re at fir m s— Nik e, T oyota , a n d A m azo n, to n am e a fe w — ev olv e a n d c h an ge. S o to o d o g re at s tr a te g ie s. N o m atte r h ow c o m pellin g, o r how c le arly d efin ed , n o o ne s tr a te g y is lik ely to b e a s u ffic ie n t g uid e fo r a fir m t h at a sp ir e s t o a l o ng a n d p ro sp ero us l if e . IK EA b uilt a g lo bal f u rn itu re b usin ess n ot b y s ta n din g s till, b ut b y p ush in g th e d esig n a n d c o nsu m er v alu e e n velo pe fo r m ore th an fif ty y ears . G ucci re d is c o vere d its b ra n d c h ic a fte r a fu m ble th at n early b ro ught th e c o m pan y dow n. B ut w hen I ta lk to m an ag ers a b out d ynam ic s tr a te g y, I lik e to d elv e in to th e sto ry o f A pple , a c o m pan y th at h as e v olv ed a n d re in ven te d its e lf more d ra m atic ally t h an p erh ap s a n y o th er o ver t h e l a st t h re e d ecad es. I h av e fo llo w ed A pple o ver m ost o f th ose y ears , a n d h av e h ad c o untle ss opportu nitie s to d is c u ss th e c o m pan y’s tr iu m phs a n d fo llie s w ith g ro ups o f ex ecu tiv es. 1 T he te n or o f th ose d is c u ssio ns h as s h if te d d ra m atic ally o ver th e years , w ith p erio ds o f rin gin g e n dors e m en ts g iv in g w ay to y ears o f b itin g critic is m . E ith er w ay , t h e c o m pan y b rin gs o ut s tr o ng e m otio ns. There i s a l o t t o l e arn f ro m A pple ’s j o urn ey , a n d f ro m t h e e x perie n ces o f i ts re m ark ab le a n d c o ntr o vers ia l le ad er S te v e J o bs w ho, s o m etim es b rillia n t a n d so m etim es n ot, w as at th e h elm lo ng en ough (in d is c o ntin uous sta g es) to sh ap e an d re sh ap e th e co m pan y. B ey ond th e p la y -b y-p la y , at its co re th e Apple sto ry ch alle n ges u s to ad dre ss so m e o f th e m ost b asic tr u is m s o f str a te g y, a n d, u ltim ate ly , to q uestio n o ne o f th e m ost fo undatio nal: W hat is th e d esir e d r e su lt o f a s tr a te g y? Acad em ic s, v en tu re c ap ita lis ts , a n d m an y m an ag ers o fte n s a y th at th e g oal of str a te g y is a lo ng-ru n, su sta in ab le co m petitiv e ad van ta g e, one th at accu m ula te s s u ch a p ow erfu l le ad o ver c o m petito rs th at n o o ne c an c atc h u p. In b usin ess s c h ool c ase s, a n aly st re p orts , a n d p ers u asiv e b usin ess p la n s, th e questio n is re p eate d ly a sk ed : Is th e c o m pan y th ere y et? D oes it h av e th at kille r a p p, th at im perm eab le e d ge, th at su sta in ab le c o m petitiv e a d van ta g e? But S te v e J o bs’s s to ry , a n d th e s to ry o f A pple its e lf , c ast s e rio us d oubts o n th at a sp ir a tio n a n d r a is e d if fe re n t q uestio ns: W hat d oes it ta k e f o r a c o m pan y to e n dure ? A nd w hat d oes t h at m ean f o r t h e w ork o f a s tr a te g is t? A R ADIC AL L EA P F O RW ARD Ste v e Jo bs a n d S te v e W ozn ia k , A pple ’s c o fo unders , d id n’t b eg in w ith a sta te m en t o f p urp ose . I n deed , i n 1 977 t h eir a m bitio ns w ere s m all a s t h ey t r ie d to fin d cu sto m ers fo r W ozn ia k ’s all- in -o ne cir c u it board s th at w ould ev en tu ally b e th e A pple ’s h eart. D on V ale n tin e, a v en tu re c ap ita lis t th ey m et early o n, re calls th at th ey im ag in ed se llin g a c o uple o f th ousa n d b oard s a year. “ T hey w ere n ’t t h in kin g a n yw here n ear b ig e n ough,” h e s a id . 2 Not u ntil t h re e y ears a fte r A pple g ot o ff t h e g ro und d o w e f in d a s e m bla n ce of a p urp ose s ta te m en t, in th e 1 980 a n nual re p ort: “ B rin gin g te ch nolo gy to in div id uals is , w e b elie v e, th e e x tr a o rd in ary b usin ess o f th is d ecad e.” B ut Wozn ia k a n d J o bs d id n’t w an t ju st g ee-w hiz te ch nolo gy. I t h ad to b e s p ecia l. It h ad t o b e u niq ue. I t h ad t o b e, J o bs w ould s a y i n t im e, “ in sa n ely g re at.” 3 I h av e to r e m in d m y c la sse s th at th e la te 1 970s w ere s e v era l lif e tim es a g o in th e c o m pute r w orld : IB M d id m ain fra m es, a n d e v ery th in g e ls e w as fo r hobbyis ts . T he A pple II, la u nch ed in 1 977 (th e c o m pan y’s fir s t re al p ro duct afte r a c ru de p ro to ty pe) w as in te n ded to b e a m ach in e th at ju st a b out a n y in div id ual c o uld u se . It w as th e fir s t s ta n dalo ne c o m pute r th at w ork ed rig ht out o f t h e b ox; w ith a c o lo r d is p la y a n d i n te rn al s p eak ers , i t c o uld b e u se d f o r gam e-p la y in g a s w ell a s w ord p ro cessin g. I ts r o unded p la stic c ase , s c h lo ck y by to day ’s sta n dard s, w as a tr iu m ph o f d esig n co m pare d w ith h obbyis ts ’ cru de m eta l b oxes, a n d w as h oned b y a d eta il- o bse sse d J o bs a fte r h e s tu die d ap plia n ces a n d s te re o s a t a S an F ra n cis c o M acy ’s . 4 In a sig nif ic an t u pdate th e n ex t y ear, A pple b ecam e th e fir s t co m pute r co m pan y to su ccessfu lly in te g ra te a flo ppy d is k d riv e in to th e co m pute r, re p la cin g th e c lu nky a n d u nre lia b le c asse tte d riv es o f th e e arlie st m ach in es. 5 Now u se rs c o uld e asily s a v e th eir o w n c re atio ns a n d re al s o ftw are c o uld b e writte n a n d s o ld . I n 1 979 th at v alu e b ecam e c ry sta l c le ar w hen A pple a d ded Vis iC alc , th e f ir s t e le ctr o nic s p re ad sh eet f o r a p ers o nal c o m pute r, g iv in g it a cle ar-c u t fu nctio nal ad van ta g e over th e Adam s, Com modore s, Tex as In str u m en ts , R ad io S hack s, a n d o th er n ew ly m in te d m ach in es. 6 In th is n asc en t w orld o f p ers o nal c o m pute rs , A pple h ad a d if fe re n ce th at matte re d . It sta k ed both its co re purp ose an d its str a te g ic ad van ta g e on te ch nolo gy, w ith th e e x pecta tio n th at it w as s o m eth in g b uyers w ould a lw ay s valu e. Consu m ers ju m ped o n b oard . A pple b eg an to d ev elo p a c u ltlik e f o llo w in g am ong u se rs fo r its cle v er d esig n an d ease o f u se . B y S ep te m ber 1 980, 130,0 00 A pple I Is h ad b een s o ld . 7 W all S tr e et, to o, w as c o m ple te ly w ow ed . In 1 978 v en tu re c ap ita lis ts h ad v alu ed th e c o m pan y a t a b out $ 3 m illio n. B ut at th e v ery e n d o f 1 980, le ss th an a m onth a fte r its in itia l p ublic o ffe rin g, Apple h ad a s to ck m ark et v alu e o f $ 1.8 billio n . T hat w as m ore th an C hase Man hatta n B an k, m ore th an F ord M oto r C om pan y, a n d f o ur tim es th e v alu e of L ock heed C orp ora tio n, w here W ozn ia k ’s f a th er w ork ed . 8 For a ll o f its te ch nic al a n d d esig n s a v vy, A pple fa ced e n orm ous s tr a te g ic an d o pera tio nal c h alle n ges. W ozn ia k w as a g en iu s a t b uild in g th e b oxes a n d Jo bs h ad u nsto ppab le e n erg y a n d a s p ot- o n s e n se o f s ty le . B ut n eith er o f t h em had an y m an ag em en t sk ill or ex perie n ce. Jo bs w as know n m ostly fo r “cau sin g a lo t o f w av es. H e lik es to f ly a ro und lik e a h um min gbir d a t n in ety mile s p er h our,” o ne fo rm er e x ecu tiv e s a id . 9 H e h ad a re p uta tio n fo r b ein g in cre d ib ly d if fic u lt— in te rru ptin g, f a ilin g to lis te n , m is sin g a p poin tm en ts , a n d bre ak in g p ro m is e s. 10 P ro fe ssio nal m an ag ers w ere b ro ught in to h elp m an ag e th e g ro w th , b ut w ho w as c allin g th e sh ots a n d w ho h eld th e p ow er in th e org an iz atio n w as n ot a lw ay s c le ar. Mean w hile th e fa st- g ro w in g in dustr y w as c h an gin g a lm ost b y th e d ay , a s one m ak er a fte r a n oth er h urrie d to b rin g o ut n ew fe atu re s, m ore m em ory , fa ste r p ro cesse s, b ette r ap plic atio ns, an d m ore u se fu l co m pute rs . E ag er to main ta in its m om en tu m , th e A pple te am ru sh ed o ut th e A pple III in th e su m mer of 1980 befo re it had been th oro ughly te ste d — or ev en re ally fin is h ed . It had little so ftw are to offe r an d w as fu ll of bugs, w hic h an atte n tiv e te ch nolo gy p re ss w as e ag er to p ublic iz e. 11 It w as th e c o m pan y’s fir s t n ota b le f a ilu re . By th en Apple fa ced its gre ate st co m petitio n yet: The beh em oth In te rn atio nal B usin ess M ach in es w as n ow in th e b usin ess. I B M h ad ta k en its tim e in e n te rin g th e m ark et, w aitin g u ntil th e p ie ces w ere in p la ce f o r th e P C to h av e g en uin e b usin ess u se s. In th e ru sh to c atc h u p, it re lie d h eav ily o n outs id ers , lo okin g to a y oung M ic ro so ft f o r a n o pera tin g s y ste m , I n te l f o r th e co m pute r’s p ro cessin g b ra in , a n d o th ers fo r m em ory c h ip s a n d d is k d riv es. The co m pan y’s pro ducts w ould nev er be as ele g an t or cu ttin g-e d ge as Apple ’s b ut th ey w ere h ugely p ra ctic al a n d th ey c am e fro m a re lia b le a n d hig hly r e g ard ed c o m pan y. Jo bs h ad a p ow erfu l p ro prie ta ry i n stin ct; h e w as p ro te ctiv e o f A pple ’s s till- uniq ue te ch nolo gy a n d h ad n o in te re st in o pen in g it u p to o th ers . It w as a min d-s e t t h at w ould s e p ara te t h e c o m pan y f ro m m ost o f i ts c o m petito rs — an d much o f th e m ark et— fo r tw o d ecad es. IB M , b y c o ntr a st, m ad e a c o nsc io us decis io n to k eep its s y ste m o pen , e n co ura g in g s o ftw are d ev elo pers to c o m e up w ith a ll k in ds o f w ord -p ro cessin g, c alc u la tin g, a cco untin g, a n d d ata b ase so ftw are t h at w ould m ak e i ts c o m pute rs e sse n tia l t o u se rs . T he o pen a p pro ach als o i n vite d c o pycat c o m pute r m ak ers , b ut I B M f ig ure d ( c o rre ctly , a t l e ast f o r a t im e) t h at i ts n am e a n d r e p uta tio n w ould c o ntin ue t o d if fe re n tia te i t. One m eetin g a ro und th at tim e is p artic u la rly te llin g: In a 1 981 v is it w ith Bill G ate s a n d P au l A lle n o f M ic ro so ft, J o bs a n d G ate s ta n gle d o ver w here th e p ers o nal c o m pute r w as g oin g. J o bs s a w t h e m ach in es a s v alu ab le t o ols f o r stu den ts an d hom eo w ners w ith so m e use s fo r busin ess. B ut G ate s w as in sis te n t th at th e P C w as a b usin ess p ro duct fir s t a n d fo re m ost, a u tilita ria n busin ess to ol, a n oth er p ra ctic al p ie ce o f e q uip m en t to m ak e th e w ork pla ce ru n m ore e ffic ie n tly . 12 These dis sim ila r ap pro ach es w ould guid e th e tw o co m pan ie s dow n dif fe re n t r o ad s f o r m an y y ears . W ith t h e b en efit o f h in dsig ht, y ou a n d I k now where t h ese o pposin g v ie w s w ill l e ad . B ut c o nsid er h ow t h e l a n dsc ap e l o oked at th at tim e: A pple w as th e m ark et sh are le ad er in th e in dustr y , it h ad a pro prie ta ry s ta te -o f-th e-a rt o pera tin g s y ste m , a n d a g ro w in g b ase o f z ealo us co nsu m ers . G iv en a ll o f th is , a n d a s k y-h ig h s to ck m ark et p ric e, w ould y ou be eag er to open your te ch nolo gy to oth er dev elo pers ? W ould you be co nvin ced , lik e B ill G ate s an d IB M , th at w hat th e w orld w an te d w as a pra ctic al b usin ess m ach in e t h at d id t h e j o b w ell? O r, l ik e t h e i d ealis t J o bs, t h e young le ad er w ith a c o m mitm en t to c h an ge th e w orld th ro ugh te ch nolo gy, would y ou w an t to c o ntin ue o n y our c o urs e to p ro duce y our o w n e le g an t a n d cu ttin g-e d ge p ro ducts ? IN SA NELY U NSE LLA BLE T EC H NO LO GY Stic k in g to its c o urs e , o ne te am a t A pple w as c le an in g u p th e A pple III while a n oth er s ta rte d o n t h e m id dle -ra n ge M acin to sh . Y et a n oth er w as h ard a t work on a to p-o f-th e-lin e re v olu tio nary m ach in e th at it nam ed Lis a (p re su m ab ly a fte r J o bs’s d au ghte r). In tr o duced to g re at fa n fa re in 1 983, th e Lis a w as a te ch nolo gic al to ur d e fo rc e. P C s th en c o uld w ork o n o nly o ne pro gra m a n d o ne s c re en a t a tim e, a n d u se rs g av e th em in str u ctio ns in a f o rm of c o de. T he L is a th re w a ll th ose c o m ple x itie s o ut th e w in dow . I t c am e w ith th e fir s t p oin t- a n d-c lic k m ouse . It h ad w hat th e te ch ie s c alle d a “ g ra p hic al use r in te rfa ce”— a te ch nic al te rm fo r m en us of optio ns— th at co uld be clic k ed , m ak in g th e c o m pute r p ow erfu l b ut s im ple to o pera te . A u se r c o uld open m ore th an o ne fu nctio n a n d w ork o n tw o o r th re e d ocu m en ts a t o nce. The h uge l e ap i n p ossib ilitie s w as e n ough t o g et a n a fic io nad o’s h eart r a cin g. As a b usin ess p ro positio n, h ow ev er, th e L is a w as a b om b. It co st $ 50 millio n a n d tw o h undre d p ers o n-y ears to d ev elo p b ut it d id n’t h av e a c le ar mark et. A pple its e lf had w ritte n all th e so ftw are , none of w hic h w as co m patib le w ith e ith er th e A pple II o r IB M m ach in es, a n d it la u nch ed w ith ju st a h an dfu l o f c o re p ro gra m s. F urth er, a ll th e f e atu re s m ad e th e c o m pute r pain fu lly slo w , w hile th ey blo ate d th e pric e to a heartb urn -in ducin g $10,0 00. 13 It w ould b e h ard to c h an ge th e w orld w ith s tu nnin g te ch nolo gy th at n o o ne bought. L is a “ w as a g re at m ach in e. W e ju st c o uld n’t s e ll a n y,” s a id B ru ce Tognazzin i, A pple ’s h um an i n te rfa ce g uru . 14 Jo bs h im se lf h ad b een s o c o m bativ e a n d d is ru ptiv e d urin g t h e d ev elo pm en t of th e L is a th at h e w as re m oved fro m it m id str e am an d b an is h ed to th e Macin to sh p ro je ct, w hic h w as b ein g d ev elo ped in a n is o la te d lo catio n th at would se p ara te him fro m th e re st of th e co m pan y. Desp ite th e dis a p poin tm en t, h e “se t o ff w ith g uns b la zin g to m ak e th e M acin to sh th e world ’s n ex t g ro undbre ak in g c o m pute r.” 15 Befo re it c o uld b e ro lle d o ut, h ow ev er, h e h ad to c o nte n d w ith a n oth er man ag em en t c h alle n ge: f in din g a r e p la cem en t f o r A pple ’s p re sid en t, w ho h ad re sig ned f o llo w in g th e d is a p poin tin g s a le s o f th e A pple I II a n d th e r o und o f dow nsiz in g th at f o llo w ed . J o bs, w ho b ecam e c h air m an d urin g th e r e sh ufflin g at th e to p, p ers o nally r e cru ite d J o hn S cu lle y , p re sid en t o f P ep siC o, w ho h ad help ed d riv e P ep si b rie fly p ast C oke as th e n atio n’s to p so ft d rin k. Jo bs wooed h im fo r m an y m onth s, re p orte d ly w in nin g S cu lle y w hen h e a sk ed , “D o y ou w an t to s p en d th e r e st o f y our lif e s e llin g s u gare d w ate r, o r d o y ou wan t a c h an ce to c h an ge th e w orld ?” 16 In J o b’s m in d, A pple ’s p urp ose w as cle ar. Scu lle y a rriv ed in tim e to h elp la u nch th e M acin to sh in 1 984. I t d eb ute d to huge f a n fa re , p ro pelle d b y a f a m ous S uper B ow l a d , p eg ged to th e O rw ellia n year, t h at c h ara cte riz ed t h e n ew c o m pute r a s r e sc u in g u se rs f ro m a d ro ne-lik e ex is te n ce. W hile IB M a n d its c o pycats w ere s till u sin g c lu nky D OS-p ro m pt co m man ds, th e M ac o ffe re d e le g an t a n d s im ply d esig ned g ra p hic s, a m ouse , an d f a r m ore f le x ib ility . But th e M acin to sh n eed ed w ork . T he r e v ie w s— an d s a le s— were d ecid ed ly te p id . A t a p re m iu m p ric e o f $ 2,4 95, it w as slo w , in co m patib le w ith th e dev elo pin g M S-D OS sta n dard s, a n d la ck in g a ra n ge o f so ftw are a t a tim e when p ro gra m s f o r I B M m ach in es w ere m ak in g th em m ore a n d m ore u se fu l. For th e f ir s t tim e in its h is to ry , A pple w as in s e rio us tr o uble . I ts c o m petitiv e ad van ta g e— an d its p oig nan t p urp ose — were s lip pin g a w ay . It s o on re p orte d its f ir s t q uarte rly l o ss a n d p la n s t o l a y o ff o ne-fif th o f i ts w ork fo rc e. Jo bs, t h e h ig h-e n erg y v is io nary , w as n ot g ettin g t h e j o b d one. M ore o ver, h e an d S cu lle y b y th en w ere a t ir re co ncila b le o dds o ver A pple ’s str a te g y. In Jo bs’s m in d, “A pple w as su ppose d to beco m e a w onderfu l co nsu m er pro ducts c o m pan y,” S cu lle y w ro te in h is m em oir . B ut th e b usin ess m ark et, not th e co nsu m er m ark et, w as ex plo din g in th e m id -1 980s an d S cu lle y th ought purs u in g th e co nsu m er busin ess in th at co nte x t w as “a lu natic pla n .” 17 Jo bs, th e th ir ty -y ear-o ld w underk in d, w ho had been on th e co ver of Busin essW eek , T im e , an d a host of oth er m ag azin es, w ho had bro ught cu ttin g-e d ge p ro ducts to a h ost o f u se rs , h ad f a ile d a s c o m pan y le ad er. T ru e, his A pple w as c re ativ e a n d in novativ e, b ut it w as in cre asin gly o ut o f sy nc with th e in dustr y , w hic h w as a im in g n ot a t c o nsu m ers b ut a t c o st- c o nsc io us busin esse s i n n eed o f m ore p ro ductiv ity . With th e s u pport o f th e b oard , S cu lle y s tr ip ped J o bs o f a ll h is o pera tio nal re sp onsib ilitie s. It w as a h uge b lo w to th e c h aris m atic b ig th in ker w ho w as th e p ublic f a ce o f A pple C om pute r. “ I f e el lik e s o m eb ody p unch ed m e in th e sto m ach a n d k nock ed a ll m y w in d o ut,” Jo bs to ld a n in te rv ie w er. “ I k now I’v e g ot a t le ast o ne m ore g re at c o m pute r in m e. A nd A pple is n ot g oin g to giv e m e a c h an ce t o d o t h at.” 18 Befo re th e en d of th e year, Jo bs w ould le av e A pple an d fo rm a new co m pute r m ak er, N eX T. TH E S U PE R -M ANAG ER E R A When a c o m pan y fo under fla ils , a n o uts id e m an ag er o fte n ste p s in . B ut would a s u per-m an ag er r e ad t h e m ark et b ette r? C ould p ro fe ssio nal e x ecu tiv es do a b ette r jo b re sto rin g A pple ’s o netim e c o m petitiv e e d ge— or re sto re o r gen era te a m ore m ean in gfu l p urp ose ? Under Scu lle y , A pple becam e a m ore dis c ip lin ed , if le ss cre ativ e, co m pan y. T he M ac’s p ro ble m s w ere c le an ed u p, w in nin g in te n se ly d ev ote d fa n s. C ap ita liz in g o n its str e n gth s, in clu din g an ad van ced p rin te r, S cu lle y help ed th e c o m pan y b eco m e th e le ad er in th e b urg eo nin g fie ld o f d esk to p publis h in g, a llo w in g le g io ns o f u se rs to c re ate th eir o w n flie rs , p am phle ts , an d p ro fe ssio nal- lo okin g d ocu m en ts f o r t h e f ir s t t im e. But w hile A pple h ad in ro ad s in sc h ools an d w ith g ra p hic artis ts , IB M co m pute rs a n d th eir c lo nes b ecam e th e d e f a cto m ach in es f o r th e w ork pla ce. They w ere n ’t p re tty , th ey w ere n ’t all th at easy to u se , an d th ey certa in ly were n ’t fu n. B ut th an ks to a sto rm o f so ftw are , th ey c o uld b uild in tr ic ate sp re ad sh eets , c re ate c o m ple x d ocu m en ts w ith e ase , c ap tu re la rg e a m ounts o f data , an d— sig nif ic an tly — easily sh are it w ith an y o th er sim ila r co m pute r. Netw ork s of th ese re la tiv ely pow erfu l co m pute rs alr e ad y w ere ch an gin g offic e p ro ductiv ity l ik e n oth in g s e en s in ce t h e m ain fra m es o f t h e 1 960s. Under S cu lle y ’s w atc h , m ore t h an 1 2 m illio n M acs w ere s o ld a s t h e m ark et fo r p ers o nal co m pute rs b eg an to b oom , an d th e co m pan y’s sa le s g re w to alm ost $ 8 b illio n f ro m a m ere $ 600 m illio n w hen S cu lle y jo in ed th e f ir m in 1983. 19 B ut A pple ’s m ark et s h are , w hic h h ad p eak ed in m id -1 984 a t 2 1.8 2 perc en t, w as slid in g. 20 T he once-in novativ e co m pan y str u ggle d vain ly to in tr o duce tr e n dse ttin g p ro ducts . I ts f ir s t p orta b le m ach in e— th e h ot c o m pute r pro duct o f th e 1 990s— was to o b ig , to o h eav y, a n d la te to th e p arty . A p re – Palm , p re -B la ck B erry p ers o nal d ig ita l a ssis ta n t ( P D A) c alle d N ew to n h ad t h e pote n tia l to b e g ro undbre ak in g b ut tu rn ed o ut to b e a h ead o f its tim e. W ith dete rio ra tin g m arg in s, n o a n sw ers to in cre asin g p ric e c o m petitio n, a n d fe w su ccessfu l n ew p ro ducts , S cu lle y h im se lf w as p ush ed o ut i n 1 993. 21 His su ccesso r, M ic h ael S pin dle r, w as a n o-n onse n se m an ag er w ho h ad tr ip le d th e s iz e o f A pple ’s E uro pean b usin ess. S pin dle r s e t o ut to c u t c o sts , decla rin g t h at A pple ’s p ro ducts w ould n ev er b e o verp ric ed a g ain . H e r e d uced R& D sp en din g, im pro ved e ffic ie n cy , a n d c u t d ev elo pm en t c y cle s. H e a ls o bro ke w ith th e c o m pan y’s lo ng-s ta n din g p ro prie ta ry p hilo so phy a n d tr ie d to lic en se A pple ’s te ch nolo gy, b ut p ulle d b ack afte r clo nes can nib aliz ed th e co m pan y’s s a le s. With out a v ia b le p urp ose a n d a w ell- a lig ned s y ste m , S pin dle r, l ik e S cu lle y , fa ile d to ste m th e tid e o f b uyers w ho w ere ra p id ly d efe ctin g to c o m pute rs pow ere d b y In te l p ro cesso rs an d ru nnin g W in dow s o pera tin g sy ste m s. A 1995 Com pute r W orld su rv ey o f 1 40 c o rp ora te c o m pute r sy ste m m an ag ers fo und th at n one o f th e W in dow s u se rs w ould c o nsid er b uyin g a M ac, w hile more th an h alf th e A pple u se rs ex pecte d to b uy an In te l- b ase d P C . 22 In ap pare n t d esp era tio n, S pin dle r tr ie d to s e ll th e c o m pan y. B ut o th er c o m pute r mak ers , str u gglin g th em se lv es w ith declin in g m arg in s an d w ic k ed glo bal co m petitio n, c o uld n’t s e e m uch f u tu re i n w hat A pple h ad t o o ffe r. Spin dle r w as o ut in th re e y ears , r e p la ced in 1 996 b y c o m pan y d ir e cto r G il Am elio , w hose t e n ure w ould b e e v en s h orte r. W hen A m elio t o ok o ver, A pple was le ak in g c ash a n d s a le s w ere p lu ngin g. T he A pple o pera tin g s y ste m w as in n eed o f a m ajo r o verh au l. T he b ra n d, w hic h h ad m atte re d so m uch to cu sto m ers in its e arly d ay s, w as n ow le ss a n d le ss s ig nif ic an t. M ic ro so ft h ad co pie d m an y o f its b est fe atu re s a n d th e d if fe re n ces b etw een h ow IB M a n d Apple c o m pute rs w ork ed h ad n arro w ed . Shortly afte r he to ok ch arg e, A m elio sh are d his pers p ectiv e on th e co m pan y’s c h alle n ges a t a S ilic o n V alle y c o ck ta il p arty : “ A pple i s a b oat,” h e to ld l is te n ers , a cco rd in g t o a g uest w ho w as t h ere . “ T here ’s a h ole i n t h e b oat, an d it’ s ta k in g on w ate r. B ut th ere ’s als o a tr e asu re on board . A nd th e pro ble m i s , e v ery one o n b oard i s r o w in g i n d if fe re n t d ir e ctio ns, s o t h at b oat i s ju st s ta n din g s till. M y jo b is to g et e v ery one r o w in g in th e s a m e d ir e ctio n s o we c an s a v e t h e t r e asu re .” Afte r A m elio tu rn ed a w ay , th e g uest tu rn ed to th e p ers o n n ex t to h im w ith an o bvio us q uestio n: “ B ut w hat a b out t h e h ole ?” 23 In deed , w hat a b out t h e h ole ? Am elio tr ie d to patc h it w ith th e sk ills he’d honed in tu rn in g aro und se m ic o nducto r busin esse s at Rock w ell In te rn atio nal an d Natio nal Sem ic o nducto r. H e s h ra n k th e p ro duct lin e, s la sh ed p ay ro lls , a n d r e b uilt c ash re se rv es. H is str a te g y, h e sa id , w ould b e to re tu rn A pple to its h is to ric al pre m iu m -p ric ed g am e b y a im in g a t h ig her-m arg in s e g m en ts , s u ch a s s e rv ers , In te rn et a ccess d ev ic es, a n d P D As. But n o m atte r h ow h ard A pple ro w ed , it d id n’t w ork . T he co m pan y’s quality had beco m e questio nab le , an d its nearly te n -y ear-o ld opera tin g sy ste m w as u nder assa u lt b y a w orth y co m petito r, W in dow s 9 5. A m elio decid ed to cu t A pple ’s lo sse s by can celin g th e re p eate d ly dela y ed nex t- gen era tio n M ac O S, w hic h h ad a lr e ad y c o st m ore th an $ 500 m illio n in R & D. To re p la ce it, h e tu rn ed to n one o th er th an S te v e Jo bs fo r a v ers io n o f h is NeX TSte p s o ftw are , d esig ned fo r h ig h-e n d p ers o nal c o m pute rs a n d s e rv ers . Pay in g w hat m an y t h ought w as a n a b su rd p ric e, A pple b ought N eX T i n 1 997 fo r $ 400 m illio n, b rin gin g Jo bs b ack in to th e fo ld as an ad vis o r. B ut as Apple ’s d ow nhill slid e c o ntin ued , A m elio h im se lf c am e u nder fir e . B y th e en d o f th e f ir s t q uarte r o f 1 997, th e c o m pan y h ad lo st $ 1.6 b illio n d urin g h is te n ure . T he b oard s e n t h im p ack in g w ith a n ic e g old en p ara ch ute a n d n am ed Jo bs i n te rim C EO . 24 TH E R O TTIN G C O RE What can str a te g is ts le arn fro m A pple ’s ex perie n ce? T he fu ndam en ta l le sso n i s t h e e v an esc en ce o f a d if fe re n ce th at m atte rs . I t d oesn ’t la st b y i ts e lf , an d w hen it’ s g one, n o a m ount o f r o w in g o r p atc h in g o f th e h ull c an f ix th e basic p ro ble m : T he s h ip h as l o st i ts r u dder. The A ustr ia n -A m eric an eco nom is t Jo se p h Sch um pete r, w ritin g in th e 1940s, s a w d ev elo pm en ts lik e th is a s p art o f a n e co nom ic c y cle . In novato rs bre ak n ew g ro und a n d r e ap w hat h e c alle d “ eco nom ic r e n ts ,” o uts iz ed p ro fits fo r t h eir i n novativ e e n deav ors . T he m ost p ote n t o f t h ese d ev elo pm en ts c au se , in h is w ord s, “ cre ativ e d estr u ctio n,” w orld -s h ak in g in novatio ns th at r e o rd er a mark etp la ce. T hese fo m en t a “ co m petitio n w hic h c o m man ds a d ecis iv e c o st or q uality a d van ta g e w hic h s tr ik es n ot a t th e m arg in s o f th e p ro fits a n d th e outp uts o f t h e e x is tin g f ir m s b ut a t t h eir f o undatio ns a n d t h eir v ery l iv es.” 25 Such c re ativ e d estr u ctio n c o m es w ith its o w n c y cle . F ir s t th e id ea e v olv es, fo llo w ed b y i ts c o m merc ia liz atio n— much l ik e t h e A pple I I m oved c o m pute rs fro m th e h obbyis ts ’ g ara g es in to p eo ple ’s h om es. In tim e, o th er c o m petito rs se e th e a b undan t o pportu nitie s a n d fin d th eir w ay in , p ush in g u p o utp ut a n d driv in g dow n pric es, until th e eco nom ic re n ts hav e all but dis a p peare d . Anoth er ro und o f cre ativ e d estr u ctio n m ust ta k e p la ce fo r p ro fits to le ap fo rw ard a g ain . T his w as e x actly th e k in d o f e ro sio n A pple s o ught to a v oid a s it r u sh ed t h e A pple I II, L is a , a n d M acin to sh c o m pute rs t o m ark et. The cre ativ e d estr u ctio n th at b ese t A pple , th ough, w as n ot th e k in d o f pro duct in novatio n at w hic h th e co m pan y its e lf ex celle d , but a m ark et in novatio n: th e b en efits th at IB M ’s c o m mitm en t to o pen so urc in g, a n d th e en su in g s ta n dard iz atio n, b ro ught to b usin ess u se rs a n d s o ftw are d ev elo pers . In its in itia l p hase s, th e s tr a te g y p ro duced h ig h g ro w th a n d p ro fits fo r IB M , but in a sp an of le ss th an tw en ty years , it dro ve th e in dustr y fro m an attr a ctiv e, p ro fita b le b usin ess to a v ic io usly c o m petitiv e, p ric e-d riv en o ne. Than ks to th eir co m patib ility an d sim ple off-th e-s h elf co m ponen ts , PC s la rg ely becam e a co m modity an d sa le s sh if te d to th e m ost effic ie n t an d ch eap est p ro vid ers . A m ong P C m an ufa ctu re rs th em se lv es, th ere w as little asy m metr y to b e fo und. B y 2 001, 9 6.5 p erc en t o f p ro fit in th e in dustr y w as cap tu re d by tw o su pplie rs w ho co ntr o lle d th e only sc arc e re so urc es: Mic ro so ft, w ith its in dustr y sta n dard M S-D OS o pera tin g sy ste m , a n d In te l, with b ra n ded p ro cesso rs t h at w ere t h e b ra in s o f t h e m ach in es. D ell’ s s ta r a ls o ro se durin g th is perio d, not becau se it m ad e partic u la rly outs ta n din g co m pute rs , but becau se it maste re d mass cu sto m iz atio n, ele ctr o nic co m merc e, a n d s u pply -c h ain m an ag em en t. 26 Man y o f th e lo ngtim e p la y ers w ould d is a p pear o ver th e n ex t d ecad e o r s o . Com paq a n d G ate w ay w ere a cq uir e d a n d I B M s o ld its P C b usin ess in 2 004, afte r lo sin g n early $ 1 b illio n s in ce th e tu rn o f th e c en tu ry . 27 In th is m ilie u , Apple w as s la in , in p art, b y th e s a m e d ra g on th at g ot M an oogia n a t M asc o : te n acio us a n d u nattr a ctiv e i n dustr y f o rc es. L ik e M an oogia n , m an y o f A pple ’s le ad ers did n’t fu lly ap pre cia te or re sp ect th e dra m atic im pact th at dete rio ra tin g i n dustr y f o rc es w ould h av e o n A pple ’s p ro sp ects . They w ere , to put it blu ntly , arro gan t. A n obse rv er of th e early day s co m men te d : “ E very body a t A pple s its a ro und a n d s a y s, ‘ W e’re th e b est. W e know it.’ T hey h av e a c u ltu re th at s a y s it a n d it s ta rts fro m S te v e J o bs a n d work s o n d ow n.” 28 A noth er n ote d th at th e “ arro gan ce s e ep ed rig ht th ro ugh th e c o m pan y a n d c am e to a ffe ct e v ery a sp ect o f th e b usin ess— th e s ty le w ith whic h it tr e ate d su pplie rs , so ftw are fir m s, a n d d eale rs , its a ttitu des to w ard co m petito rs , a n d t h e w ay i t a p pro ach ed t h e d ev elo pm en t o f n ew p ro ducts .” 29 When a f ir m ’s p urp ose is c o nsis te n t w ith th e c o m petitiv e e n vir o nm en t a n d pro duces a d if fe re n ce t h at m atte rs , i t’ s c o m pellin g. W hen i t g ro w s o ut o f s y nc an d a n ch ors a f ir m in a p ast th at n o lo nger e x is ts , it’ s a lia b ility . A pple w as esse n tia lly c au ght in a tr a p o f its o w n m ak in g, o ut o f s y nc w ith a c o m pute r mark et th at had beco m e in cre asin gly co nnecte d an d co m moditiz ed . It stu bborn ly stu ck to its o rig in al str a te g y o f p ro ducin g e x pen siv e a n d c le v er pers o nal co m pute rs th at use d dif fe re n t pro cesso rs an d re q uir e d dif fe re n t so ftw are (a n d e v en p rin te rs ) th an e v ery one e ls e . T he su per-m an ag ers w ho carrie d o n a fte r J o bs s c ra m ble d to fix p ro ble m s w ith la y offs , re str u ctu rin gs, an d f lip -flo ppin g s tr a te g ie s a b out w heth er to m ove to a n o pen s y ste m , r e d uce pric es, o r e n te r s e g m en ts w ith h ig her m arg in s, b ut m ost d id n’t g ra p ple d eep ly en ough w ith t h e f u ndam en ta l q uestio n y ou k now s o w ell: Is t h e v ery c o re , t h e p urp ose b eh in d i t a ll, w ork in g? Lookin g b ack , A pple c o fo under S te v e W ozn ia k ru ed th e fir m ’s re fu sa l to te st its c o re a ssu m ptio ns, p artic u la rly th e d ecis io n to k eep a tig ht h old o n th e opera tin g sy ste m to p ro te ct w hat ex ecu tiv es th ought w as A pple ’s critic al re so urc e— its h ard w are . In fa ct, in th e c o m petitiv e m ilie u th at d ev elo ped , it was A pple ’s s o ftw are , n ot h ard w are , th at w ould h av e b een th e m ost v alu ab le to u se rs . “W e h ad th e m ost b eau tif u l o pera tin g s y ste m , b ut to g et it y ou h ad to b uy our h ard w are a t tw ic e th e p ric e. T hat w as a m is ta k e,” W ozn ia k s a id . “ W hat we sh ould hav e done w as calc u la te an ap pro pria te pric e to lic en se th e opera tin g s y ste m .” 30 W hile th e e arly b uild ers th ought th at b ette r te ch nolo gy would alw ay s pre v ail, th ey le arn ed th e hard w ay th at it w as ju st one dim en sio n th e m ark et care d ab out, an d not en ough to overc o m e th e dis a d van ta g es o f t h e f u ll p ack ag e. “T he c o m pute r w as n ev er th e p ro ble m ,” W ozn ia k sa id . “ T he c o m pan y’s str a te g y w as.” 31 TH E E D UCATIO N O F A S T R ATEG IS T The J o bs w ho le ft A pple in 1 985 w as a c o ck y a n d b ra sh y oung m an ag er, dete rm in ed to d em onstr a te th at h e co uld w in w ith th e A pple str a te g y o f mak in g c u ttin g e d ge c o m pute rs w ith g re at te ch nolo gy. A t N eX T, J o bs w as in co m ple te c o ntr o l— an d b y a ll a cco unts , h e ra n ra m pan t, u nch eck ed b y th e kin ds o f p ro fe ssio nal m an ag ers w ho te m pere d h is e n erg y a t A pple o r e v en a board of dir e cto rs . H is alm ost im possib ly hig h sta n dard s ru le d , as A la n Deu ts c h m an desc rib ed : “It w asn ’t en ough fo r th e new m ach in e to be dis tin guis h ed b y o ne p artic u la r b re ak th ro ugh. F or th e s o ftw are h e w as ta k in g an e n tir e ly n ew a p pro ach , sta rtin g fro m sc ra tc h , tr y in g to c re ate th e m ost ele g an t lin es o f s o ftw are c o de e v er w ritte n . T he in dustr ia l d esig n h ad to b e lik e n o c o m pute r e v er c re ate d . I t h ad to b e a s g org eo us a n d s le ek a s S te v e’s bla ck P ors c h e. E ven th e fa cto ry h ad to b e b eau tif u l, a n d it h ad to b e a s f u lly au to m ate d a s a n y f a cto ry i n t h e w orld .” 32 NeX T’s fir s t c o m pute r, a g org eo us c u be d esig n Jo bs d esc rib ed a s “ fiv e years a h ead o f its tim e,” w as a im ed a t th e a cad em ic m ark et. B ut it w as la te arriv in g a n d— at $ 10,0 00 if y ou b ought a la se r p rin te r a n d s o m e n ecessa ry ex tr a s— pric ed clo se r to a V olk sw ag en th an a PC . C om merc ia lly , th e mach in e w as a co lo ssa l fa ilu re , a caric atu re w rit la rg e o f A pple ’s fa ile d str a te g y, an d th e re sp onsib ility la y fu lly at Jo bs’s o w n fe et. S tu den ts an d acad em ic s s h unned t h e c u be f o r $ 1,5 00 b asic P C s. T he b usin ess w orld w asn ’t much in te re ste d , e ith er. W hile to o e x pen siv e to b e a p ers o nal c o m pute r, th e co m pute r w as to o u nderp ow ere d to b e a w ork sta tio n. 33 A s h e h ad a t A pple , Jo bs a g ain m is re ad th e m ark et a n d w hat it w an te d . U ltim ate ly , N eX T so ld ju st 5 0,0 00 m ach in es, a p itif u l r e su lt. 34 Jo bs’s s ta r f e ll d ra m atic ally in S ilic o n V alle y a s h is c h an ce to s h ow th at h e co uld “ d o it” a g ain f a d ed . I t w as a n e m barra ssin g p ers o nal d eb acle . A s e arly as 1 993, to p m an ag ers h ad b eg un to ru sh fo r th e e x its , th e c o nte n ts o f th e fa cto ry w ere b ein g a u ctio ned o ff, a n d Fortu ne m ag azin e h ad d ubbed J o bs a “sn ak e-o il s a le sm an .” 35 R efle ctin g la te r o n th e fia sc o , J o bs e x pla in ed : “ W e knew w e’d e ith er b e th e la st h ard w are c o m pan y th at m ad e it o r th e f ir s t th at did n’t, a n d w e w ere t h e f ir s t t h at d id n’t.” 36 Durin g th e sa m e p erio d, h ow ev er, Jo bs w as in volv ed in a n oth er v en tu re th at w ould p ro ve m ore d ura b le . A fte r le av in g A pple , h e s o ld n early a ll h is sto ck , a n d u se d s o m e o f th e p ro ceed s to b uy a m ajo rity in te re st in P ix ar, a fle d glin g a n im atio n s tu dio . T hough h e w as m ore o f a v en tu re c ap ita lis t th ere th an a n e x ecu tiv e, h e h eld th e title o f c h air m an a n d C EO , a n d b an kro lle d th e co m pan y th ro ugh a n um ber o f d ow ntu rn s. A s Toy S to ry , th e fir s t fe atu re – le n gth co m pute r-g en era te d film , w as ab out to be re le ase d in 1995, Jo bs ste p ped u p h is in volv em en t a n d o rc h estr a te d P ix ar’s e n orm ously s u ccessfu l in itia l p ublic o ffe rin g ( w hic h n ette d h im $ 1.1 7 b illio n). F ollo w in g t h e I P O , h e neg otia te d a n ew fiv e-film d eal w ith D is n ey , w hic h p ro duced Toy S to ry 2 , Monste rs In c ., an d Fin din g N em o , film s th at bro ke all co nven tio ns in an im ate d sto ry te llin g. In 2 006, w hen D is n ey b ought P ix ar fo r $ 7.5 b illio n, Jo bs becam e a Dis n ey dir e cto r an d th e en te rta in m en t fir m ’s la rg est sh are h old er. 37 F or Jo bs, P ix ar tu rn ed o ut to h av e a D is n ey -lik e e n din g: It mad e h im a m ultib illio nair e , h elp ed h im r e b uild h is r e p uta tio n i n t h e b usin ess co m munity , a n d g av e h im c o nta cts a n d d eep in sig hts in to th e e n te rta in m en t in dustr y , w hic h w ould b eco m e i m porta n t l a te r. RED IS C O VER IN G D IF FE R EN CES T H AT M ATTER NeX T w as b are ly h an gin g o n w hen A pple b ought it, a n d th e in dustr y h ad all b ut w ritte n A pple i ts e lf o ff. W hen J o bs r e tu rn ed , t h e c o m pan y w as r a p id ly slip pin g to w ard b an kru ptc y . Its sto ck p ric e w as at a te n -y ear lo w an d its mark et sh are had plu m mete d to 3 perc en t. Speak in g at an in dustr y co nfe re n ce, M ic h ael D ell, th e c h air m an a n d C EO o f D ell C om pute r, h ad a sh arp a n sw er fo r w hat h e w ould d o if h e w oke u p s u dden ly in th e fo rm o f Ste v e Jo bs: “I’d sh ut Apple dow n an d giv e th e money back to sh are h old ers .” 38 But J o bs, e d ucate d b y h is N eX T a n d P ix ar e x perie n ces, s te p ped u p to th e ch alle n ge. H e b eg an th e p ain sta k in g p ro cess o f re b uild in g h is o ld c o m pan y, fo llo w in g a d vic e h e h im se lf h ad g iv en th e y ear b efo re : “ If I w ere ru nnin g Apple , I w ould m ilk th e M acin to sh fo r a ll it’ s w orth — an d g et b usy o n th e nex t g re at t h in g,” h e t o ld Fortu ne i n 1 996. 39 Jo bs b eg an b y c u ttin g A pple ’s b ro ad p ro duct lin e to fo ur o ffe rin gs— tw o co nsu m er, tw o b usin ess, a p orta b le a n d a d esk to p m odel e ach — an d ta rg etin g re se arc h a n d d ev elo pm en t o n th e v ery b est id eas. O f th ese , th e fir s t p ro duct co nceiv ed a n d b uilt a fte r J o bs’s re tu rn w as th e iM ac. “ T he d ay I le ft A pple we h ad a 1 0-y ear le ad o ver M ic ro so ft. In th e te ch nolo gy b usin ess a 1 0-y ear le ad is re ally h ard to c o m e b y . . . [b ut] , if y ou lo ok a t th e M ac th at s h ip s to day , it’ s 2 5 p erc en t d if fe re n t th an th e d ay I le ft. A nd th at’ s n ot e n ough f o r 10 y ears a n d b illio ns o f d olla rs in R & D,” h e s a id , lo okin g b ack . “ It w asn ’t th at M ic ro so ft w as s o b rillia n t o r c le v er i n c o pyin g t h e M ac, i t’ s t h at t h e M ac was a s ittin g d uck f o r 1 0 y ears . “T hat’ s A pple ’s p ro ble m : t h eir d if fe re n tia tio n e v ap ora te d .” 40 By th e fo llo w in g y ear, Jo bs h ad p ut a n ew m an ag em en t te am in p la ce, in clu din g s e v era l m an ag ers w ho h ad w ork ed w ith h im a t N eX T. T his te am would b e th e c o re o f h is b ra in tr u st f o r n early te n y ears . 41 T he n ew J o bs a ls o had a n ew m an ag em en t s ty le . B y a ll a cco unts , h e w as s till b ra sh , a b ra siv e, an d o fte n a rro gan t, b ut th is J o bs k new s o m eth in g a b out e x ecu tin g a n d h ad en ough m atu rity to te m per h is w ors t b eh av io rs . D urin g th e f ir s t m eetin g w ith a p ro duct g ro up, S te v e re p orte d ly w ould “ lis te n a n d a b so rb . In th e se co nd meetin g, h e w ould a sk a s e rie s o f d if fic u lt a n d p ro vocativ e q uestio ns: ‘ If y ou had to c u t h alf o f y our p ro ducts , w hat w ould y ou d o?’ h e w ould a sk . H e would a ls o ta k e a p ositiv e ta ck : ‘If m oney w ere n o o bje ct, w hat w ould y ou do?’ ” 42 The iM ac, in tr o duced in 1 998, w as a w ell- d esig ned a ll- in -o ne c o m pute r an d m onito r, w ith a p ric e ta g o f $ 1,2 99— still h ig her th an p opula r P C s, b ut well b elo w th e $ 2,0 00-p lu s o f p re v io us m odels . Its d esig n w as a b re ath o f fre sh a ir i n a m ark et t h at h ad s e en l ittle f u ndam en ta l i n novatio n i n s o m e t im e, in co rp ora tin g th e s im plic ity o f th e o rig in al M ac a n d a n e asy w ay to u se th e In te rn et. I t q uic k ly a ttr a cte d a w hole n ew c u sto m er g ro up— nearly 3 0 p erc en t of t h ose w ho b ought a n i M ac h ad n ev er o w ned a c o m pute r b efo re . I n t h e f ir s t year, A pple so ld tw o m illio n of th e m ach in es, w hic h , w ith co st cu ttin g, help ed i t b uild a m uch -n eed ed c ash c u sh io n. 43 In e ffe ct, w ith t h e i M ac, J o bs p atc h ed t h e h ole i n A pple ’s b oat. Jo bs p ut t h e c ash t o w ork w ith a n ew s tr a te g y, o ne t h at c o m bin ed t h e f ir m ’s orig in al p urp ose w ith a n in cis iv e u nders ta n din g o f w hat c o nsu m ers v alu ed . At a M acW orld g ath erin g i n 2 001, h e s p elle d o ut a g re ate r p urp ose f o r A pple . The fir s t g old en a g e o f th e p ers o nal c o m pute r, th e a g e o f p ro ductiv ity , h e ex pla in ed , b eg an w ith th e e arly m ach in es a n d la ste d a b out f if te en y ears . T hat was f o llo w ed b y a s e co nd g old en a g e, th e a g e o f th e I n te rn et, w hic h b ro ught new u se s t o b oth b usin esse s a n d c o nsu m ers . Now , h e s a id , th e c o m pute r w as e n te rin g a th ir d g re at a g e, th e d ig ita l a g e, popula te d b y c ell p hones, D VD p la y ers , d ig ita l c am era s, a n d d ig ita l m usic . I n th at n ew a g e, J o bs th ought, th e “ n ex t g re at th in g” w ould b e th e c o m pute r n ot as a n oth er g ad get, b ut a s th e c en te rp ie ce o f a ll th ese d ev ic es. It w ould p ull to geth er in fo rm atio n m an ag em en t, co m munic atio n, an d en te rta in m en t in a se am le ss w hole , e n han cin g h ow a ll th ese o th er d ev ic es c o uld b e u se d . N ow you w ould b e a b le to b oth ta k e v id eo a n d e d it it, lis te n to m usic a n d c re ate your o w n m ix es a n d s o unds, r e co rd y our p ic tu re s a n d s h are th em in n ew a n d dif fe re n t w ay s. 44 This so -c alle d d ig ita l h ub str a te g y b ecam e a n ew p urp ose , a c le ar, w ell- artic u la te d id ea th at w ould g uid e A pple ’s p ro ducts a n d s tr a te g y fo r th e n ex t decad e. A s it beg an to ta k e sh ap e, A pple in tr o duced th e iT unes m usic so ftw are a s a w ay to o rg an iz e m usic o n y our c o m pute r, ro lle d o ut a fu lly overh au le d M ac o pera tin g sy ste m , a n d o pen ed its fir s t re ta il sto re , se llin g Apple p ro ducts in h ig h-te ch , h ig h-to uch b outiq ues, c o m ple te w ith c u sto m er- se rv ic e “ g en iu s b ars .” Pie ce b y p ie ce, J o bs b eg an t o r e m ak e A pple . I t w as n ot a lw ay s a s m ooth o r lin ear pro cess. P erh ap s dra w in g fro m his P ix ar ex perie n ce, Jo bs in itia lly push ed iM ovie , s o ftw are th at w ould a llo w M ac u se rs to e asily m ak e a n d e d it movie s. B ut w hile h e fo cu se d o n th at, u se rs w ere g org in g th em se lv es o n se rv ic es t h at w ere p ro vid in g d ig ita l m usic f o r f re e a n d u sin g b urn ers i n sta lle d on m an y P C s to m ak e th eir o w n c o m pact d is c s. T he iM ac h ad n’t y et o ffe re d CD b urn ers , a n d w ith out t h em , s a le s s lo w ed . Jo bs h ad a fo re h ead -s la p pin g m om en t. “I fe lt lik e a d ope,” h e sa id . “I th ought w e h ad m is se d i t. W e h ad t o w ork h ard t o c atc h u p.” 45 An u pgra d e to th e M ac O pera tin g S yste m ad dre sse d th e p ro ble m , th en Apple d esig ners s a w a n oth er o pportu nity : T he a v aila b le d ig ita l m usic p la y ers were a w fu l. T hey w ere s lo w to lo ad a n d th ey c o uld h old o nly a f e w s o ngs— an im pro vem en t o ver th e S ony W alk m an , to b e s u re , b ut h ard ly p ro ducts f o r a d ig ita l a g e. T he i P od, i n tr o duced i n l a te 2 001, w as a s e a c h an ge, a p ow erfu l music p la y er th at w ould f it e asily in a p ock et th an ks to a tin y h ard d riv e a n d an A pple s o ftw are c alle d F ir e W ir e t h at a llo w ed f o r s u perfa st d ow nlo ad in g. With it a n d iT unes, A pple re v olu tio niz ed th e m usic in dustr y . N ap ste r, a popula r file -s h arin g so ftw are , had co nditio ned use rs to th e id ea of dow nlo ad in g th eir ow n m usic ch oic es fo r fre e, a se rv ic e th at w as la te r decla re d ille g al. Jo bs str u ck a d eal w ith th e m usic in dustr y : A pple w ould pro vid e a sim ila r se rv ic e w ith iT unes b ut c h arg e fo r in div id ual so ngs a n d alb um s, an d th e in dustr y w ould sh are in th e re v en ues. T he iT unes sto re open ed fo r M ac u se rs in A pril 2 003 a n d e x pan ded to W in dow s u se rs th at Octo ber, m ultip ly in g its m ark et e x ponen tia lly . ( In a n oth er s ig n o f a n ew a g e, Apple d ev elo ped s o ftw are e x plic itly t o m ak e s o m eth in g w ork a s e le g an tly o n a P C a s it d id o n th e iM ac.) A nd in a ra re e co nom ic tu rn aro und, c o nsu m ers beg an t o p ay f o r s o m eth in g t h at h ad r e cen tly b een f re e. The p ro ducts a n d s e rv ic es A pple ro lle d o ut c ap ita liz ed o n th e c o m pan y’s ex quis ite s e n se o f d esig n a n d te ch nolo gic al w iz ard ry a n d b ro ught th e w hole dig ita l re v olu tio n in to sh arp re lie f. Jo bs to ld Tim e in e arly 2 002, “ I w ould ra th er co m pete w ith S ony th an co m pete in an oth er p ro duct cate g ory w ith Mic ro so ft.” 46 There ’s an oth er boat sto ry , an an cie n t G re ek para d ox th at pro vid es a pow erfu l m eta p hor f o r th is p ro cess. A fte r s la y in g th e M in ota u r in C re te , th e hero T hese u s sa ile d b ack to A th en s in a w ell- w orn sh ip . A s each p la n k decay ed , it w as r e p la ced b y n ew a n d s tr o nger tim ber, u ntil e v ery p la n k in th e sh ip h ad b een c h an ged . W as it th en s till th e s a m e s h ip ? A nd if n ot, th en a t what p oin t— with w hic h p la n k— did th e s h ip ’s id en tity s h if t? It’ s a p ara d ox th at P lu ta rc h c alle d “ th e l o gic al q uestio n o f t h in gs t h at g ro w .” 47 At A pple , J o bs s a w t h e i P od a s a t u rn in g p oin t. “ If t h ere w as e v er a p ro duct th at c ata ly zed w hat’ s A pple ’s r e aso n f o r b ein g, it’ s th is ,” h e s a id , “ b ecau se it co m bin es A pple ’s in cre d ib le te ch nolo gy b ase w ith A pple ’s le g en dary e ase o f use w ith A pple ’s a w eso m e d esig n. T hose th re e th in gs c o m e to geth er in th is , an d it’ s lik e, th at’ s w hat w e d o. S o if a n ybody w as e v er w onderin g w hy is Apple o n e arth , I w ould h old u p t h is a s a g ood e x am ple .” 48 By 2 005, a to ta l o f 4 2 m illio n iP ods h ad b een s o ld . 49 B y 2 009, A pple w as se llin g 6 0 m illio n a y ea r . U se rs d ow nlo ad ed m ore th an a b illio n so ngs o ff iT unes a n d n ow b ought m ovie s, te le v is io n s h ow s, a n d e v en b usin ess s c h ool le ctu re s f o r t h eir i P ods. If th e iM ac h ad h elp ed J o bs s ta b iliz e th e b oat, th e iP od a n d iT unes w ere now p ro pellin g th e w hole e n te rp ris e fo rw ard a s a n ew v esse l w ith a n ew purp ose a n d a n ew d estin atio n. A nd, a s w ith G ucci, it w as b eco m in g c le ar th at A pple ’s su ccess w as d ue n ot to a h ost o f o ne-o ff p ro ducts , b ut fro m honin g a n id ea, a n id en tity , a n d a n in tr ic ate ly w oven s y ste m o f e le m en ts th at work ed i n c o ncert. In tu itiv ely , Jo bs unders to od Sch um pete r’s messa g e ab out “cre ativ e destr u ctio n,” a n d th is tim e g ot a h ead o f th e c u rv e. T he n ew A pple , u nder th e new Jo bs, b ecam e its o w n “ cre ativ e d estr u ctio n” m ach in e, le an in g in to th e win d to in tr o duce b ette r a n d b ette r p ro ducts th at c an nib aliz ed th em se lv es, se em in gly b efo re a n yone e ls e h ad a c h an ce t o g et w ith in h alf a m ile . In 2 007, A pple ro lle d o ut th e iP hone, le v era g in g th e s p ecia l d esig n o f th e iP od in to a c re d it c ard –siz ed p ack ag e th at c o uld ta k e a n d m ak e c alls , ta lk to th e In te rn et, a n d h old v ast a m ounts o f m usic o r p hoto s a s w ell. S udden ly a good b it o f th e e q uip m en t o n y our d esk fit e asily in to y our p ock et, a n d th e co m pan y w as e n r o ute t o r e v olu tio niz in g a n oth er i n dustr y . Fittin gly , th at y ear, A pple d ro pped “ C om pute r” f ro m its n am e a n d b ecam e sim ply A pple In c. B y 2 010, c o m pute rs m ad e u p ju st 2 7 p erc en t o f its $ 65.2 billio n in s a le s fo r th e fis c al y ear e n ded S ep te m ber 2 5, w hile iP ods, m usic , an d iP hones b ro ught in a lm ost 6 0 p erc en t o f th e re v en ue. 50 A pple ’s sto ck ro are d to u nse en h eig hts . W ith a m ark et v alu e w ell o ver $ 300 b illio n, it becam e th e m ost valu ab le te ch nolo gy co m pan y in th e w orld , su rp assin g Mic ro so ft. Even as Jo bs battle d se rio us health pro ble m s, in clu din g a 2009 liv er tr a n sp la n t, A pple tr u m ped its e lf ag ain , in tr o ducin g th e m uch -a n tic ip ate d ta b le t c o m pute r, th e iP ad . T he d esig n, th e c ap ab ilitie s, a n d th e s o ftw are s e t new s ta n dard s f o r a w hole n ew c ate g ory o f p orta b le c o nsu m er d ev ic es, w hic h may , i n t h e n ot- to o-d is ta n t f u tu re , r e p la ce t h e t r a d itio nal c o m pute r a lto geth er. The b eta v ers io n o f th e m uch -to ute d iC lo ud, a n nounced in th e su m mer o f 2011, w as a fu rth er ste p , a llo w in g u se rs to k eep d ata in sy nc b etw een a n y Apple o r P C w ith n o n eed t o t r a n sfe r f ile s b y e m ail o r U SB . 51 A S U ST A IN ABLE C O M PE TIT IV E A DVANTA G E? Giv en t h is g ra n d t r a n sfo rm atio n, i t’ s a p pro pria te t o a sk : I s A pple t h ere y et? Desp ite its la te -c en tu ry tr o uble s, d oes it n ow h av e a s u sta in ab le c o m petitiv e ad van ta g e? I ofte n ask E O Pers th is questio n w hen te ach in g th e A pple case . It is te m ptin g t o s h out, “Yes!,” a s c la sse s o fte n d o, o r m ay be e v en r e to rt, “ D o y ou hav e t o a sk ?” A pple h as r e in ven te d i ts i n novativ e p urp ose a n d, o n t h e f a ce o f it, se em s to b e ru nnin g c ir c le s a ro und c o m petito rs , e v en ta u ntin g th em fo r th eir l a ck o f c re ativ ity . C ase c lo se d ? I t h in k n ot. In 2 010, A pple ’s c o m pute r m ark et sh are so are d to a b out 1 1 p erc en t, b ut th at’ s hard ly th e m ark of a dom in an t in dustr y pla y er. O th erw is e norm al peo ple w ill cam p outs id e an A pple sto re fo r th e la te st iP hone, but sm artp hones b ase d o n G oogle In c.’ s A ndro id s o ftw are s u bsta n tia lly o uts o ld th e iP hone in 2 010, acco rd in g to N PD G ro up, a m ark et re se arc h fir m . 52 Win dow s-b ase d c o m petito rs to th e iP ad a re c o m in g f a st a n d f u rio usly . S uch ta b le ts m ig ht w ell b eco m e th e fo urth g old en a g e, re p la cin g th e tr a d itio nal pers o nal c o m pute r a s th e c en te r o f th e d ig ita l h ub w hile b eco m in g p ro ducts so ld la rg ely o n p ric e. A nd th ere ’s n o g uara n te e th at th e iP ad , th e iC lo ud eco sy ste m , o r th eir s u ccesso rs w ill b e th e o nes th at h ead th e p ack a c o uple o f years f ro m n ow . Conven tio nal w is d om w ould sa y th at th e g oal o f str a te g y is a lo ng-te rm su sta in ab le c o m petitiv e a d van ta g e. I c h alle n ge th at v ie w . S uch a d van ta g es are r a re a n d f o r g ood r e aso n. A s S ch um pete r s h ow ed , p eak s i n m ark et g ro w th an d p ro fita b ility o fte n c o m e fro m c h an ge, n ot s ta sis . H en ry F ord d om in ate d car s a le s w ith a s in gle , a ffo rd ab le m odel u ntil A lf re d S lo an ’s G en era l M oto rs beat him w ith a lin e of dif fe re n tia te d pro ducts . Pola ro id ow ned in sta n t photo gra p hy u ntil d ig ita l im ag in g s h ut it o ut; m an y b ro ad -s e rv ic e h osp ita ls were m onopolie s u ntil lo w -c o st fo cu se d p ro vid ers s ta rte d c h ip pin g a w ay a t th eir b ase ; c o lle g es w ith s p ra w lin g c am puse s o w ned h ig her e d ucatio n u ntil co m munity co lle g es, fo r-p ro fit org an iz atio ns, an d dis ta n ce le arn in g ch alle n ged t h em w ith d if fe re n t e co nom ic m odels . Zero in g i n o n o ne c o m petitiv e a d van ta g e a n d e x pectin g it to b e s u sta in ab le mis re p re se n ts th e s tr a te g is t’ s c h alle n ge. It e n co ura g es m an ag ers to s e e th eir str a te g ie s as se t in co ncre te an d, w hen sp ottin g tr o uble ah ead , to g o in to defe n siv e m ode, h unkerin g d ow n to p ro te ct th e s ta tu s q uo in ste ad o f r is in g to meet th e need s of a new re ality . T o be su re , co m petitiv e ad van ta g e is esse n tia l t o s tr a te g y, a n d t h e l o nger i t l a sts , t h e b ette r. B ut a n y o ne a d van ta g e, ev en a co m pan y’s u nderly in g sy ste m o f v alu e cre atio n, is o nly p art o f a big ger s to ry , o ne f ra m e in a m otio n p ic tu re . It is th e n eed to m an ag e acro ss fra m es, d ay b y d ay , y ear o ver y ear, th at m ak es a le ad er’s r o le in s tr a te g y s o vita l. This o rg an ic v ie w o f s tr a te g y r e co gniz es t h at w hate v er c o nstitu te s s tr a te g ic ad van ta g e w ill ev en tu ally ch an ge. It unders c o re s th e dif fe re n ce betw een defe n din g a fir m ’s ad ded v alu e as esta b lis h ed at an y g iv en m om en t an d so m eth in g fa r m ore im porta n t: e n su rin g th at a fir m c o ntin ues to a d d v alu e over tim e. This is w hat en dure s— not a partic u la r purp ose , a partic u la r ad van ta g e, o r a p artic u la r s tr a te g y, b ut t h e o ngoin g n eed t o a d d v alu e, a lw ay s. The o ngoin g n eed to g uid e a n d d ev elo p a c o m pan y so th at it c o ntin ues to matte r. T his is n ot to s a y th at g re at re so urc es a n d g re at a d van ta g es a re n ot built b y b usin esse s th at en han ce th eir co re d if fe re n ces o ver tim e. B ut th e pro ducts a n d s e rv ic es th at e m body th ose d if fe re n ces m ust e v olv e a n d c h an ge an d, a s A pple le arn ed th e h ard w ay , th eir v alu e h as to b e m easu re d b y th e pre se n t e n vir o nm en t, n ot o ne t h at o nce w as. Quite p ain fu lly , th at m ay m ean th at, lik e th e s h ip o f T hese u s, th e k eel m ay need t o b e r e b uilt o r t h e s h ip m ay n eed t o s a il i n a v ery d if fe re n t d ir e ctio n. A s my e x ecu tiv e s tu den ts lik e to p oin t o ut, th is c h alle n ge ra re ly h ap pen s w hen you’re s ittin g a t th e d ock . It’ s a h ard re aliz atio n th at th e p la n ks h av e to b e ch an ged w hile y ou’re sa ilin g, w hile y ou’re als o str a in in g to n av ig ate an d work in g h ard t o k eep t h e s h ip a flo at. On h is re tu rn to A pple , J o bs h ad to re m ak e th e c o m pute r c o m pan y p la n k by pla n k w hile als o keep in g it fro m ban kru ptc y — re b uild in g not in a ra in sto rm , b ut in a h urric an e o n th e h ig h s e as. H e g ot it rig ht fo r th e m ost part, but, as ev en its arc h riv al— th e once undau nta b le M ic ro so ft— has dis c o vere d , t h e c h alle n ge n ev er e n ds. ON B EIN G A S T R ATEG IS T — EV EN W HEN Y O U’R E N O T S T EV E JO BS “O kay ,” y ou m ay b e th in kin g ab out n ow , “I g et th at str a te g y m ust b e dynam ic . I a ccep t th at b y m ost m easu re s, A pple is a s tr a te g ic s u ccess. A nd Ste v e J o bs r e ally tu rn ed it a ro und. B ut le t’ s b e f a ir : H e w as S te v e J o bs— an d I’m not. N or is m y co m pan y A pple .” It’ s a re actio n I ofte n hear fro m ex ecu tiv es. You’re rig ht, of co urs e . There w as only one Jo bs. B ut am ong th e re m ark ab le c h ap te rs o f h is s to ry is th at h e w asn ’t a b orn s tr a te g is t. H e m ad e huge m is ta k es. H e in tr o duced fla w ed p ro ducts . H e d ro ve o ne c o m pan y in to th e g ro und, a n d w as h im se lf d riv en fro m a n oth er. H e h ad to le arn to b e a str a te g is t, j u st l ik e t h e r e st o f u s. Lik e D e S ole a t G ucci, J o bs h ad to h av e th e e n erg y a n d m otiv atio n to k eep an en te rp ris e m ovin g fo rw ard . H e h ad to w re stle w ith th e p ro fo und an d te rrib le p ara d ox m an y str a te g is ts m ust m an ag e: S ta y th e c o urs e — Rein ven t yours e lf . T his m ay s o und l ik e a c h oic e b etw een c o ntin uin g o n a g iv en p ath o r ch oosin g a n oth er, b ut fo r m ost b usin esse s it’ s u su ally a d uality : b ein g o ne th in g w hile b eco m in g s o m eth in g e ls e . T his p oin ts to a n oth er a d van ta g e f o r a fir m : th e str a te g is t— or, m ore sp ecif ic ally , y ou. A s a str a te g is t, y ou’re th e pers o n w ho m ust w atc h o ver th e o rg an iz atio n, g uid in g its c o urs e , m ak in g th e ch oic es th at b rin g it b ack to c en te r d ay a fte r d ay a n d y ear a fte r y ear e v en a s you m ust c h oose w hen t h e c en te r, t h e p urp ose , i ts e lf s h ould e v olv e. Y ou m ust decid e w heth er to le an in to th e w in d o r n ot, a n d ju dge w heth er y our s tr a te g y is d ynam ic o r d ead . Lead in g str a te g y is a nonsto p re sp onsib ility ; it can ’t be outs o urc ed or so lv ed i n o ne g re at b ra in sto rm in g s e ssio n. Y ou w on’t j u st w ak e u p o ne d ay t o fin d th at y our c o m pan y h as a n ew a d van ta g e o r th at its p urp ose c h an ged overn ig ht. R ath er, it w ill c h an ge b ecau se th e in dustr y c h an ges. I t w ill c h an ge becau se ta ste s c h an ge. It w ill c h an ge b ecau se y our p eo ple c h an ge a n d th ey brin g n ew s k ills a n d s tr e n gth s t o t h e e n te rp ris e . A nd u ltim ate ly , i t w ill c h an ge becau se s o m eo ne m ad e t h e c all t o d o s o — you, t h e s tr a te g is t. Now , hav in g accep te d th at th e only su sta in ab le str a te g y is one th at an tic ip ate s ch an ge, y ou’re re ad y to em bra ce b eco m in g th e str a te g is t w ho ta k es y our c o m pan y w here i t n eed s t o g o. Chap te r 8 The E sse n tia l S tr a te g is t W E’V E T A LK ED A g re at d eal a b out w hat a s tr a te g is t d oes, b ut w e’v e to uch ed o nly lig htly o n th e perso n w ho d oes it. F or a ll th e in fo rm atio n a v aila b le o n s tr a te g y, little is d ev ote d to w hat w ill m ak e y ou a s u ccessfu l s tr a te g is t. W hat s k ills a n d m in d-s e ts d o y ou n eed t o h one? W hat u niq ue v alu e c o uld y ou b rin g t o y our b usin ess? My f in al t a sk i s t o a d dre ss t h ese q uestio ns, a n d t o h elp y ou b e t h e s tr a te g is t y ou w an t to b e. U nlik e s o m uch o f th e w ork y ou’v e d one u p to h ere , th is la st l e ap r e q uir e s p uttin g a sid e th e in dustr y a n aly se s a n d th e s tr a te g y s ta te m en ts , a n d i n ste ad l o okin g d eep ly i n to t h e how o f b ein g a s tr a te g is t. The m ost im porta n t th in g is to u nders ta n d th at y ou a re n ot a m an ag er o f s tr a te g y, o r a fu nctio nal s p ecia lis t. O th ers c an fill th ose ro le s. Y ou a re , fir s t a n d fo re m ost, a le ad er. Y our g oal is to b uild s o m eth in g th at is n ot a lr e ad y t h ere . T o d o s o , y ou m ust c o nfro nt th e f o ur b asic q uestio ns y ou h av e a lr e ad y e x plo re d : What d oes m y o rg aniz a tio n b rin g t o t h e w orld ? Does t h at d iffe re n ce m atte r? Is s o m eth in g a bout i t s c a rc e a nd d iffic u lt t o i m ita te ? Are w e d oin g t o day w hat w e n eed t o d o i n o rd er t o m atte r t o m orro w ? As a l e ad er, y ou m ust a n sw er t h ese q uestio ns. Most b usin ess p ra ctitio ners ( a n d m ost b usin ess t h in kers , f o r t h at m atte r) a re u naccu sto m ed to f a cin g q uestio ns o f th is k in d— at le ast w hen p ut s o s ta rk ly . W e’re m uch m ore c o m fo rta b le c o nfin in g o urs e lv es to m ore ta n gib le b usin ess i s su es: I s o ur m ark et s h rin kin g o r g ro w in g? W hat a re o ur c o m petito rs u p to ? T o l e ad , y ou h av e t o b e w illin g t o m ak e r o om f o r n ew c h alle n ges a n d b e o pen t o th e u niq ue w ay s y ou c an a d d v alu e to y our b usin ess. T hin k a b out th is o ld Zen s to ry . A p ow erfu l a n d s e lf -a ssu re d m an g oes to a Z en m aste r a n d a sk s to be ta u ght ab out en lig hte n m en t. A fte r siz in g up th e guest in an in itia l co nvers a tio n, th e Z en m aste r in vite s h im to h av e te a. T he m aste r p ours . H e goes o n p ourin g e v en t h ough t h e t e a i s f lo w in g o ver t h e b rim o f t h e c u p. “S to p!” t h e v is ito r c alls o ut. “ C an ’t y ou s e e t h at t h e c u p i s o verflo w in g?” “Y es,” t h e Z en m aste r r e p lie s. “ B ut a c u p t h at i s a lr e ad y f u ll c an not t a k e i n an yth in g e ls e .” I f o ne’s m in d i s a lr e ad y f ille d t o t h e b rim , t h ere i s n o p la ce f o r new i d eas. To b e a s tr a te g is t, o ne m ust b e w illin g t o e x plo re n ew w ay s o f l e ad in g. BE A F IR E S T A RTER Bein g a str a te g is t ta k es driv e an d in itia tiv e, an d th e w illin gness an d cu rio sity to ask q uestio ns an d v en tu re fo rw ard . A s b ed ro ck im porta n t as str a te g y is to th e lo ng-te rm s u ccess o f a f ir m , y ou m ig ht th in k th at in vesto rs , board s o f a d vis o rs , e v en th ose w ork in g in a f ir m w ould k eep it u pperm ost in a le ad er’s m in d. U nfo rtu nate ly , th e o pposite is to o o fte n tr u e; p artie s y ou’d th in k w ould b e c la m orin g fo r m ore s e ttle fo r le ss, e sp ecia lly if a b usin ess’s num bers a re r e aso nab ly g ood. T he c o m mitm en t a n d p assio n— th e f ir e s ta rtin g —fo r t h is w ork m ust c o m e f ro m y ou. But le ad ers th em se lv es, an d th eir o w n sc h ed ule s, are o fte n p art o f th e pro ble m . Fin din g t h e t im e a n d c o ura g e t o a d dre ss s tr a te g y i s a c o nsta n t c h alle n ge f o r most le ad ers . S ure , y ou k now y ou n eed to w ork o n s tr a te g y n ow a n d th en , an d y ou re co gniz e th at y our m an ag em en t te am n eed s it. B ut y ou’re th e o ne who h as to m ak e sp ace fo r it a n d th at ra re ly is e asy . “ M an ag ers w ho g et cau ght in th e tr a p o f o verw helm in g d em an ds b eco m e p ris o ners o f r o utin es,” wro te H eik e B ru ch a n d S um an tr a G hosh al, i n A B ia s f o r A ctio n . “ T hey d o n ot hav e tim e to n otic e o pportu nitie s. T heir h ab itu ate d w ork p re v en ts th em f ro m ta k in g th e fir s t n ecessa ry s te p to w ard h arn essin g w illp ow er: d ev elo pin g th e cap acity to d re am a n id ea in to e x is te n ce a n d tr a n sfo rm in g it in to a c o ncre te in te n tio n.” 1 Ste p hen C ovey ’s cele b ra te d dis tin ctio n betw een urg en t an d im porta n t activ itie s h elp s u s u nders ta n d, in p art, w hy th is is s o . T oo o fte n p eo ple a re co nsu m ed by activ itie s th at are urg en t but not im porta n t— in te rru ptio ns, man y d ay -to -d ay a ctiv itie s, a n d c o m mon fir e s e v ery m an ag er fa ces. W hat su ffe rs are en deav ors th at are im porta n t but not urg en t: build in g org an iz atio nal c ap ab ilitie s, n urtu rin g lo ng-te rm r e la tio nsh ip s, a n d d ev elo pin g via b le s tr a te g ie s. Bey ond co m petin g dem an ds an d th e ad re n alin e ru sh th at co m es w ith co nsta n t activ ity , th ere is an ev en deep er ex pla n atio n ab out w hy m an y le ad ers , an d m an y fir m s, fa il to fu lly en gag e w ith str a te g y: They ’re co m fo rta b le w ith th e s ta tu s q uo e v en w hen it is n ’t s c in tilla tin g. S ch um pete r warn ed lo ng a g o th at m ost p eo ple a re c o nte n t w ith k eep in g th in gs th e w ay th ey a re . R ic h ard S w ed berg , a S ch um pete r e x pert, n ote s t h at t h e c o nse rv ativ e natu re of peo ple push es back ag ain st in novatio n, an d m an y le ad ers th em se lv es re sis t c h an ge: “ W hile d oin g w hat is fa m ilia r is a lw ay s e asy . . . doin g w hat is n ew is n ot.” 3 O r, a s S ch um pete r s a id , “ T he w hole d if fe re n ce betw een sw im min g w ith th e str e am a n d a g ain st th e str e am is to b e fo und here .” 4 For eco nom ic dev elo pm en t to flo uris h , le ad ers m ust sw im ag ain st th e str e am . T hey m ust s te p f o rw ard a n d ta k e th e in itia tiv e, e n erg etic ally s h ow in g th e w ay . S ch um pete r r e fe rs t o t h is t y pe o f l e ad er a s a “ M an o f A ctio n” ( M an n der T at) , s o m eo ne w ho d oes n ot a ccep t r e ality a s it is . T he M an o f A ctio n, in Sw ed berg ’s in te rp re ta tio n, “ d oes n ot h av e th e s a m e in ner o bsta cle s to c h an ge as s ta tic p eo ple o r p eo ple w ho a v oid d oin g w hat i s n ew . W hat t h en d riv es t h e man o f a ctio n? In c o ntr a st th e sta tic p ers o n, w ho g oes a b out h is b usin ess becau se h e w an ts to sa tis fy h is n eed s an d sto ps o nce h is g oal h as b een acco m plis h ed , th e le ad er h as o th er s o urc es o f m otiv atio n. H e c h arg es a h ead becau se h e w an ts p ow er a n d b ecau se h e w an ts t o a cco m plis h t h in gs . . .” 5 Beh in d e v ery p uls a tin g, v ib ra n t s u ccessfu l s tr a te g y is a le ad er w ho s e iz ed th e in itia tiv e a n d m ad e it h ap pen . D ev elo pin g a n d e x ecu tin g s tr a te g y w ith a ll th e necessa ry dim en sio ns— in clu din g th e acco unta b ility th at atte n ds to mak in g decis io ns w ith gre at co nse q uen ces— is not a fu nctio n. It is a le ad ers h ip j o b, a n d a b ig o ne. IT ’S Y O UR C H OIC E In a n ow c la ssic Harv a rd B usin ess R evie w a rtic le , p ublis h ed in 1 963, th e year b efo re th e fir s t w om en w ere a d m itte d to th e M BA p ro gra m , S ey m our Tille s, a l e ctu re r a t t h e s c h ool, w ro te a b out t h e r e sp onsib ility l e ad ers h av e f o r se ttin g a c o urs e f o r a c o m pan y. H e p ro pose d th at o f a ll th e q uestio ns a c h ie f ex ecu tiv e i s r e q uir e d t o a n sw er, o ne p re d om in ate s: W hat k in d o f c o m pan y d o you w an t y ours t o b e? ( H e r a is e d a s im ila r q uestio n f o r a sp ir in g l e ad ers a b out th em se lv es.) W ro te T ille s: If y o u a sk y o ung m en w hat th ey w ant to a cco m plis h b y th e tim e th ey are 4 0, th e a nsw ers y o u g et fa ll in to tw o d is tin ct c a te g orie s. T here a re th ose — th e g re a t m ajo rity — who w ill r e sp ond in te rm s o f w hat th ey w ant to have. This is esp ecia lly tr u e of gra duate stu den ts of busin ess adm in is tr a tio n. T here a re s o m e m en , h ow ever, w ho w ill a nsw er in te rm s of th e k in d o f m en th ey h ope to b e. T hese a re th e o nly o nes w ho h ave a cle a r i d ea o f w here t h ey a re g oin g. The sa m e is tr u e o f c o m panie s. F or fa r to o m any c o m panie s, w hat little t h in kin g g oes o n a bout t h e f u tu re i s d one p rim arily i n m oney t e rm s. There is n oth in g w ro ng w ith fin ancia l p la nnin g. M ost c o m panie s s h ould do m ore o f it. B ut th ere is a b asic fa lla cy in c o nfu sin g a fin ancia l p la n with th in kin g a bout th e k in d o f c o m pany y o u w ant y o urs to b eco m e. I t is lik e sa yin g, “ W hen I’m 4 0, I’m g oin g to b e ric h .” It le a ves to o m any basic q uestio ns u nansw ere d . R ic h i n w hat w ay? R ic h d oin g w hat? 6 In th e la st th re e d ecad es, a s s tr a te g y h as m oved to b eco m e a s c ie n ce, w e hav e a llo w ed t h is f u ndam en ta l i n sig ht t o s lip a w ay . W e n eed t o b rin g i t b ack . Exis te n tia lis t philo so phers unders to od th e im porta n ce of ch oic es. They re co gniz ed th at as in div id uals , w ho w e are is to a la rg e ex te n t an accu m ula tio n o f a ll th e c h oic es, la rg e a n d sm all, w e’v e m ad e th ro ugh th e years o f o ur liv es. E xte rn al e v en ts a n d in flu en ces a re im porta n t, to o, b ut o ur ch oic es a re t h e m ost p ow erfu l l e v er w e h av e t o a ffe ct o ur l iv es. So, to o, fo r c o m pan ie s. B ut w ho m ak es th e v ita l c h oic es th at d ete rm in e a fir m ’s v ery i d en tity ? W ho s a y s, “ This i s o ur p urp ose , n ot t h at. This i s w ho w e will b e. This is w hy o ur c u sto m ers a n d c lie n ts w ill p re fe r a w orld w ith u s ra th er th an w ith out u s” ? T hese are th e q uestio ns th e str a te g is t m ust o w n. While e x is te n ce m ay b e g iv en , e sse n ce n ev er is . T he s to ry , th e m ean in g, th e re al sig nif ic an ce m ust b e m ad e. A s a le ad er, it is y ours to c re ate . O th ers , in sid e a n d o uts id e th e fir m , w ill c o ntr ib ute in m ean in gfu l w ay s, b ut in th e en d, i t i s t h e l e ad er w ho b ears r e sp onsib ility f o r t h e c h oic es t h at a re m ad e. It is th is r e sp onsib ility th at g iv es y ou a p ro fo und o pportu nity to s h ap e y our busin ess a n d in flu en ce its d estin y. O r a s J e an -P au l S artr e , a m ajo r e x ponen t of ex is te n tia lis m , put it, “T here is a fu tu re to be fa sh io ned .” 7 Sartr e ch am pio ned w hat h e c alle d “ th e p ossib ility o f c h oic e,” c ele b ra tin g th e w ay it positio ns p eo ple to c ra ft id en tity a n d d efin e p urp ose . In h is v ie w , it is th is fu ndam en ta l a sp ect— th e p ossib ility o f c h oic e— th at c re ate s th e o pportu nity to fin d m ean in g. “ M an fir s t o f a ll e x is ts ,” h e w rite s, “ en co unte rs h im se lf , su rg es up in th e w orld — an d defin es him se lf afte rw ard s.” 8 S artr e ’s is a univ ers e t h at c re ate s b oundle ss p ossib ilitie s f o r s e lf -d efin itio n. Now co nsid er th e m ean in g th is co nvic tio n, th is fa ith in th e pow er of in div id uals to “ su rg e u p in th e w orld ,” “ in ven t th em se lv es,” a n d “ fa sh io n a fu tu re ” can hold in th e busin ess w orld . Is n ’t th is w hat S ch um pete r w as sa y in g? I s n ’t i t w hat b usin ess s h ould b e a ll a b out? M an ag ers t r y in g t o s u sta in str a te g ic pers p ectiv e m ust be re ad y to co nfro nt th is basic ch alle n ge. Org an iz atio ns h av e to “ su rg e u p,” “ in ven t th em se lv es,” a n d “ fa sh io n” th eir fu tu re s. T hey to o fa ce w hat S artr e c alls a “ p ossib ility o f c h oic e” e v ery d ay th eir d oors a re o pen . O r ra th er, th eir o w ners a n d m an ag ers d o, fo r ju st a s Sartr e a ssig ns p eo ple r e sp onsib ility f o r f a sh io nin g th eir f u tu re s, th e s tr a te g ic im pera tiv e f o r o rg an iz atio ns f a lls t o t h ose w ho l e ad t h em . This q uest is as re le v an t fo r la rg e m ultib usin ess co m pan ie s as it is fo r fo cu se d , o w ner-le d o nes. A s l e v era g ed b uy-o uts p ro lif e ra te a n d s u pply c h ain s open u p a ro und t h e w orld , n oth in g i s m ore i m porta n t f o r a n y f ir m t h an a c le ar se n se o f p urp ose , a c le ar s e n se o f w hy th ey m atte r. A b oard c h air m an a t o ne su ch c o nglo m era te m ad e th e p oin t b lu ntly w hen h e a sk ed , “ W hat h ot d is h is th is c o m pan y b rin gin g t o t h e t a b le ?” H e w as i s su in g t h e s a m e c h alle n ge. Such w ork c an ta k e e n orm ous c o ura g e a n d f o rtitu de— th e w ay Y oung a n d Kohl a t B rig hto n C olle ctib le s in sis t o n m in im um re sa le p ric es a n d re fu se to se ll to s to re s th at w on’t p ro vid e s u ffic ie n t m ark etin g s u pport f o r th eir b ra n d, or th e w ay I n gvar K am pra d c h ose to p ro duce f u rn itu re f o r th e m an y, n ot th e fe w . T hese a re th e d ecis io ns th at d ete rm in e n ot o nly w hat a b usin ess w ill d o, but, m ore f u ndam en ta lly , w hat a b usin ess w ill b e. F ew c h oic es c o uld m atte r more . ST A Y A G IL E As w e s a w w ith A pple , th e s tr a te g is t’ s w ork is n ev er d one. A ch ie v in g a n d main ta in in g s tr a te g ic m om en tu m i s a c h alle n ge t h at c o nfro nts a n o rg an iz atio n an d its le ad er e v ery d ay o f th eir e n tw in ed e x is te n ce. It’ s n ot o ne c h oic e a str a te g is t m ust m ak e, b ut m ultip le c h oic es o ver t im e. Helm uth von M oltk e, a dis c ip le of th e m ilita ry th eo ris t C la u se w itz , unders to od th is w ell: “ C erta in ly th e c o m man der in c h ie f w ill k eep h is g re at obje ctiv e c o ntin uously i n m in d, u ndis tu rb ed b y t h e v ic is situ des o f e v en ts . B ut th e p ath o n w hic h h e h opes to re ach it c an n ev er b e fir m ly e sta b lis h ed in ad van ce. T hro ugh th e c am paig n h e m ust m ak e a s e rie s o f d ecis io ns o n th e basis of situ atio ns th at can not be fo re se en . . . . E very th in g dep en ds on pen etr a tin g t h e u ncerta in ty o f v eile d s itu atio ns t o e v alu ate f a cts , t o c la rif y t h e unknow n, t o m ak e d ecis io ns r a p id ly , a n d t h en t o c arry t h em o ut w ith s tr e n gth an d c o nsta n cy .” 9 No le ss th an fo r th e m ilita ry co m man der, th is is your jo b, an d it’ s a ch alle n gin g bala n cin g act. A s w e le arn ed in pre v io us ch ap te rs , gre at str a te g ie s a re s y ste m s, w ith th eir o w n in te g rity a n d in te rn al h arm ony a m ong th e e le m en ts ( th in k o f h ow D e S ole r ig oro usly l in ked e v ery th in g h e d id t o h is purp ose , f ro m p ro duct lin e o n u p to m an ag em en t c u ltu re ). O fte n , y ou w ill b e ab le to a d ap t w hile k eep in g y our p urp ose in ta ct. B ut y ou c an not c o nfu se th e in te g rity o f a s y ste m w ith rig id ity . Y our s y ste m o f v alu e c re atio n h as to b e fle x ib le a n d a d ap ta b le . L ik e y our s tr a te g y, it to o h as to e v olv e o ver tim e, a n d re sp ond t o — or b ette r y et, a n tic ip ate — ch an ges i n t h e b usin ess e n vir o nm en t o r with in t h e f ir m i ts e lf t h at c an m ak e i ts e le m en ts o bso le te . Philo so pher M arth a N ussb au m desc rib es th e bala n ce in a sy ste m as a “fra g ile in te g rity .” It is “im possib le to build w ate r-tig ht sh ip s th at w ill with sta n d all co ntin gen cie s,” sh e w ro te . “Y ou can not re m ove u ngovern ed ch an ce f ro m h um an l if e .” 10 A nd i t i s w ro ng t o t r y . As a str a te g is t, y ou n eed to liv e w ith “u ngovern ed ch an ce.” N ussb au m ta lk s a b out t h is a s g oin g f ro m a “ m ore c o nfid en t t o a l e ss c o nfid en t w is d om ,” cu ltiv atin g “fle x ib le re sp onsiv en ess, ra th er th an rig id hard ness.” 11 This re q uir e s le ttin g g o o f a “ ra g e fo r c o ntr o l” a n d b ein g o pen to re th in kin g a n d re fa sh io nin g e le m en ts o f y our s tr a te g y. Even m ore f u ndam en ta lly , a s a le ad er y ou m ust a llo w y ours e lf to b e o pen to re in te rp re tin g w hat y our b usin ess is a b out. J u st a s it is n ecessa ry to s ta k e out a p urp ose , a le ad er m ust b e o pen to re th in kin g th at p urp ose in o rd er to move t h e b usin ess f o rw ard . T hese u s w as w illin g t o c h an ge o ver e v ery p art o f his s h ip to p re se rv e its s e aw orth in ess. A s a s tr a te g is t, y ou m ust b e w illin g to re p la ce v ir tu ally e v ery c o m ponen t o f y our b usin ess to e x te n d its re le v an ce an d f u tu re . There is a te m pta tio n, I th in k w id esp re ad , to belie v e th at th e fir m co m pris e s its p arts a n d th eir a lig nm en t, a n d th at c erta in p arts o f th e b usin ess are s o c ritic al to w hat a fir m is th at w ith out th em th e fir m , in a n im porta n t se n se , c ease s to b e. Y ou a re th e o ne w ho m ust re sis t th is te m pta tio n a n d pers u ad e o th ers w hen b ig ch an ges are d ue. P ab lo P ic asso p ut it b lu ntly : “S uccess is d an gero us. O ne b eg in s to c o py o nese lf , a n d to c o py o nese lf is more d an gero us t h an t o c o py o th ers . I t l e ad s t o s te rility .” 12 Very r a re i s t h e l e ad er w ho w ill n ot, a t s o m e p oin t i n h is o r h er c are er, h av e to o verh au l a c o m pan y’s s tr a te g y in p erh ap s d ra m atic w ay s. S om etim es th is brin gs m om en ts o f e p ip han y— eu re k a fla sh es o f in sig ht th at ig nite d azzlin g new w ay s o f th in kin g a b out a n e n te rp ris e , its p urp ose , its p ote n tia l. I h av e witn esse d so m e o f th ese m om en ts , in sm all g ro up m eetin gs o r e v en in th e cla ssro om , a s m an ag ers re co ncep tu aliz e w hat th eir o rg an iz atio ns d o a n d a re cap ab le o f d oin g. T hese e p is o des a re i n sp ir in g. T hey c an b eco m e c ata ly tic . Oth er t im es t h ese d ecis io ns c an b e w re n ch in g, p artic u la rly i f y ou h av e b uilt a b usin ess th at m ay n eed to b e ta k en a p art a n d p ut b ack to geth er a g ain in a new w ay . M ore th an o ne o w ner o r m an ag er— men a n d w om en c o m in g to grip s w ith w hat t h eir o rg an iz atio ns a re a n d w hat t h ey w an t t h em t o b eco m e— has d esc rib ed th at r e to olin g a s a n in te n se p ers o nal s tr u ggle . R ecall r e al e sta te en tr e p re n eu r K err T ay lo r’s a n guis h ed d ecis io n in c h ap te r 6 to s h ut d ow n h is orig in al bro ker-d eale r busin ess in th e eco nom ic dow ntu rn . T hough it no lo nger offe re d his co m pan y a str a te g ic ad van ta g e, he w as em otio nally atta ch ed to it a n d c o uld n’t le t g o. W hen h e fin ally fa ced u p to re ality a n d clo se d i t, h e s a id , “ It w as o ne o f t h e h ard est t h in gs I e v er d id .” Yet th ose s a m e p eo ple o fte n s a y th at th e e x perie n ce w as o ne o f th e m ost re w ard in g o f t h eir l iv es. I t c an b e p ro fo undly l ib era tin g a s a k in d o f c o rp ora te re b ir th o r c re atio n. A n e x ecu tiv e s tu den t, t h e C EO o f a l a rg e A sia n f ir m , o nce desc rib ed his ow n ex perie n ce: “I lo ve our busin ess, our peo ple , th e ch alle n ges, t h e f a ct t h at o th er p eo ple g et d eep b en efits f ro m w hat w e s e ll,” h e sa id . “ E ven s o , i n t h e c o m in g y ears , I c an s e e t h at w e w ill n eed t o g o i n a n ew dir e ctio n, a n d t h at w ill m ean s e llin g o ff p arts o f th e b usin ess. T he m ark et h as gotte n to o co m petitiv e, an d w e d on’t m ak e th e m arg in s w e u se d to .” H e win ced a s h e a d m itte d t h is . Then he lo w ere d his voic e an d ad ded so m eth in g su rp ris in g. “A t a fu ndam en ta l le v el, th ough, it’ s c h an ges lik e th is th at k eep u s f re sh , a n d k eep me g oin g. W hile i t c an b e p ain fu l w hen i t h ap pen s, i n t h e l o ng r u n I w ould n’t wan t t o l e ad a c o m pan y t h at d id n’t r e in ven t i ts e lf .” Done w ell, underta k en org an ic ally , th e ex erc is e of cra ftin g str a te g y beco m es a jo urn ey th at c an r e n ew b oth a c o m pan y a n d a le ad er. T hose w ho sh ould er th e r e sp onsib ilitie s o f a n o w ner o r to p m an ag er lik ely a lr e ad y k now th e sa tis fa ctio n o f b uild in g so m eth in g, cre atin g so m eth in g th at w ould n ot hav e o th erw is e e x is te d . M ax D e P re e, th e le g en dary C EO o f H erm an M ille r, sa id it w ell: “ In th e e n d, it is im porta n t to r e m em ber th at w e c an not b eco m e what w e n eed t o b e b y r e m ain in g w hat w e a re .” 13 And t h at, f in ally , i s t h e p oin t o f e v ery th in g, i s n ’t i t? M ak in g s o m eth in g a n d help in g it f in d its w ay . C ontin ually r e fin in g a n d r e n ew in g its r e aso n to e x is t. It is th e e n durin g jo b o f a le ad er. A s w e s a w in A pple , b usin esse s, n o le ss th an p eo ple , h av e t o r e in ven t t h em se lv es. GET Y O UR T EA M O N B O ARD Even a s y ou str iv e fo r a b ig -p ic tu re v ie w o f y our b usin ess, y ou n eed to beco m e in tim ate w ith it a t th e g ro und le v el. A fte r a ll, y ou’re le ad in g a g ro up effo rt. Y ou n eed to c o nnect w ith p eo ple th ro ughout th e b usin ess s o th at y ou can b oth in sp ir e th em a n d le arn f ro m th em . I f y ou d on’t f ill th em in o n y our th in kin g, th ey ’re n ot lik ely to m ak e s tr a te g y p art o f th eir a g en da. A nd if y ou don’t e n lis t th eir k now le d ge in c re atin g p la n s, y ou a re w astin g a n in valu ab le re so urc e: A s th e p eo ple w ho ta lk w ith th e c u sto m ers a n d d o a lio n’s s h are o f th e w ork , t h ey p osse ss i n fo rm atio n y ou c an ’t d o w ith out. Thom as Sap orito , ch air m an of RH R In te rn atio nal, a man ag em en t dev elo pm en t fir m , b elie v es th at m an y le ad ers g et so lo ck ed in to th eir o w n vis io n th at th ey r e sis t h earin g w hen o th ers d on’t b elie v e in it. O ne e x ecu tiv e he co ach ed , a C EO of a F ortu ne 100 co m pan y, se t am bitio us goals but fo cu se d m ore o n th e s o undness o f h is s tr a te g y th an o n o th ers ’ a ccep ta n ce o f it: H e “ w as s o b lin d to h ow th e b oard a n d e m plo yees r e ally f e lt a b out it, th at he c o uld n’t g au ge th eir lo w le v els o f b uy-in .” H e w as e v en tu ally a sk ed to ste p a sid e. “ A lm ost e v ery C EO I’v e w ork ed w ith stu m ble s a t so m e p oin t becau se o f th is ,” S ap orito w ro te . “ W hen th at h ap pen s, I re m in d th em th at ex ecu tiv es d on’t g et p aid t o b e r ig ht. T hey g et p aid t o b e e ffe ctiv e.” 14 Max D e P re e w as elo quen t on th is su bje ct as w ell. H e belie v ed th at ev ery one in a n o rg an iz atio n h as a r ig ht to u nders ta n d s tr a te g y a n d a r ig ht to be in volv ed in it. “ G ood c o m munic atio n is n ot s im ply s e n din g a n d r e ceiv in g. Nor i s g ood c o m munic atio n s im ply a n e x ch an ge o f d ata ,” h e w ro te . “ T he b est co m munic atio n fo rc es you to lis te n .” 15 Thro ughout, how ev er, D e Pre e re co gniz ed th at le ad ers hav e an oblig atio n to pro vid e an d m ain ta in mom en tu m : “ It is th e fe elin g a m ong a g ro up o f p eo ple th at th eir liv es a n d th eir w ork a re in te rtw in ed a n d m ovin g to w ard a r e co gniz ab le a n d le g itim ate goal.” S uch m om en tu m c o m es fro m a “ cle ar v is io n o f w hat th e c o rp ora tio n ought t o b e, f ro m a w ell- th ought o ut s tr a te g y t o a ch ie v e t h at v is io n, a n d f ro m care fu lly co nceiv ed an d co m munic ate d dir e ctio ns an d pla n s th at en ab le ev ery one to partic ip ate an d be public ly acco unta b le in ach ie v in g th ose pla n s.” 16 Nap ole o n p ut i t t h is w ay : “ D efin e r e ality , g iv e h ope.” That g re at a d vic e a ck now le d ges th e im porta n ce o f fa cin g a n d in te rp re tin g hard -n ose d e co nom ic re ality (a s M an oogia n o f M asc o d id n ot) , u nders c o re s th e n eed fo r a p urp ose an d a p la n (a s w e sa w in IK EA an d G ucci) , an d re co gniz es t h e hum an n eed o f te am m em bers to b e m otiv ate d a n d a ssu re d . I n ra lly in g th e G ucci tr o ops a ro und h is n ew p urp ose , D e S ole m ad e it h is jo b to keep p eo ple in fo rm ed , w hile a ls o re sp ondin g to th e ra p id b usin ess c h an ges aro und h im . “I w as v ery g ood a t m otiv atin g a n d c o m munic atin g w ith p eo ple . I u se d to giv e s p eech es in th e c afe te ria s o th at e v ery one w ould k now w hat w e w ere doin g,” h e s a id in a n in te rv ie w . “ I w as v ery d ecis iv e in u pgra d in g p ers o nnel an d m ak in g v ery h ard d ecis io ns. I w as d is c ip lin ed , a n d u nder r e al p re ssu re to perfo rm . I t w as a c o nsta n t p ro cess o f m ak in g c h an ges.” The h ard a n d t h e s o ft, a ll i n o ne. Tay lo r o f A m REIT s p eak s w ith e n th usia sm a b out w ork in g o n s tr a te g y w ith his te am . “ It sta rts w ith a d eep d iv e,” h e sa y s, “ b ut th en c o ntin ues a s a n ongoin g str a te g ic co nvers a tio n. Dis c u ssio n is honest, open — whic h is partic u la rly i m porta n t w hen i s su es a re t o ugh.” I t t o ok t im e a n d e ffo rt t o r e ach th is p oin t, h e a d ds. “ O ver th e la st te n y ears w e h av e h ad to le t g o o f a lo t o f eg o an d pow er le v els .” N ow th e te am has a co m mon la n guag e aro und str a te g y. T oday , it’ s th e g lu e: “ W e h av e c o nvers a tio ns th at r e la te to s tr a te g y in s o m e w ay e v ery w eek .” If a le ad er sh ortc h an ges questio ns of str a te g y, an org an iz atio n an d ev ery one in it w ill su ffe r. If a le ad er sh ortc h an ges th e te am an d fa ils to cle arly c o m munic ate th at s tr a te g y, lis te n to o th ers , o r in sp ir e th em to g et o n board , th e o utc o m e w ill b e eq ually b ad . A s a str a te g is t, th at m ean s y our ab ility to c o m munic ate — an d to c o nnect w ith o th ers in th e o rg an iz atio n— is as v ita l t o y our s u ccess a s a n yth in g e ls e y ou d o. ONCE A G AIN : T H E C H OIC E I S Y O URS In th e c lo sin g se ssio n o f th e E O P p ro gra m , I o ffe r th e e x ecu tiv es so m e ad vic e: “ O n t h e w ay h om e, i f t h e p ers o n s ittin g n ex t t o y ou o n t h e p la n e a sk s what y ou d o, s im ply s a y : ‘ I’m a g uard ia n o f o rg an iz atio nal p urp ose .’ 17 A fte r th at, y ou w on’t n eed to w orry a b out a n y m ore q uestio ns c o m in g fro m th at dir e ctio n!” The E O Pers a lw ay s la u gh, b ut b y th is tim e in th e c o urs e , it’ s a k now in g la u gh. T hey r e co gniz e th ere ’s a r e al tr u th b urie d in th e h um or: I f th ey d on’t em bra ce th e r o le b eh in d th ose w ord s, s o m eth in g e sse n tia l in th eir b usin esse s will b e m is sin g. Work in g w ith th ousa n ds o f le ad ers , I’v e se en th at y ou d on’t h av e to b e Ste v e J o bs to f e el g ood a b out th e c o ntr ib utio n y ou’v e m ad e, o r th e b usin ess you’v e h elp ed t o b uild . I n m y c la sse s, i t’ s n ot j u st t h e m ultib illio n-d olla r s te el an d w orld -c la ss m ic ro fin an ce co m pan ie s th at brin g sa tis fa ctio n, but th e can dle c o m pan y th at b eg an in a k itc h en a n d g re w to su pport n ot o nly th e co uple w ho s ta rte d it, b ut m ore th an o ne th ousa n d o th ers ; th e c o ffe e ro aste r who s te p ped o ut o f h is f a m ily ’s b usin ess t o o ffe r a n ew v alu e p ro positio n t o a new se t of cu sto m ers ; th e m ed ic al su pply co m pan y th at’ s gro w n w ith a fa m ily o ver t h re e g en era tio ns, e ach l e ad er w eath erin g h is o r h er o w n s h are o f cris e s a n d t h e o ngoin g n eed t o f in d n ew f o otin g, a n ew r e aso n t o m atte r. Part o f t h e g ra tif ic atio n t h ese l e ad ers e x perie n ce s te m s f ro m g ra p plin g w ith one’s busin ess is su es at unex pecte d dep th , an d se ein g th em in a la rg er co nte x t, s u ch a s a n e x ecu tiv e i n a s to ra g e b usin ess w ho c am e t o a m uch m ore so phis tic ate d u nders ta n din g o f t h e i m pact o f t h e p ow erfu l e co nom ic f o rc es i n his in dustr y , o r th e o w ner o f a fin an cia l se rv ic es n etw ork w ho re b uilt h is fra n ch is e f ro m th e g ro und u p to s e rv e a la rg er b ut le ss w ealth y c lie n t g ro up. Wheth er re fin in g a b usin ess’s p urp ose o r d ir e ctio n, o r h ow all o f th at is bro ught to lif e , le ad ers sa y th ey a re g ra p plin g w ith th eir fir m ’s fu tu re a t a more b asic l e v el t h an t h ey h ad b efo re . When p re sse d , s o m e re fe r to th e tr a n sitio n fro m u nders ta n din g th e b ro ad outlin es o f a le ad er’s ro le to a m ore g ro unded se n se o f w hat th e p ositio n dem an ds. O th ers r e fe r to a n ew fo und b elie f in th e p ossib ility o f s h ap in g th eir fir m ’s f u tu re i n a w ay t h at t h ey h ad n ot p re v io usly c o nsid ere d . A f e w in div id uals m en tio n s o m eth in g e ls e . B efo re , th ey s a y , th ey th ought ab out str a te g y as a se t o f p ro ble m s to b e so lv ed — th e w ay it is so o fte n ap pro ach ed in b oth p ra ctic e a n d in s c h ool. N ow , h ow ev er, th ey ’re th in kin g ab out s tr a te g y a s a w ay o f l if e f o r t h em se lv es a s a l e ad er, a s e t o f q uestio ns t o be liv ed . 18 M ig uel A guilu z, th e f o under o f I n k f o r L ess, ta lk s a b out h ow h e has in te rn aliz ed th e p ro cess. H e w an ts h is b usin esse s to b e d is tin ct, n ot o nly when th ey ’re fo unded , b ut o ver tim e. “I ju st fin d w ay s an d m ean s to b e dif fe re n t fro m th e o th er g uys. T hat’ s w hat I d o,” h e s a id . W hen w ork in g a new id ea all th e w ay th ro ugh a str a te g y, he so m etim es fin ds him se lf at lo ggerh ead s w ith h is o pera tio ns e x ecu tiv es, w ho a re r e lu cta n t to s w itc h g ears or c h an ge a g oo d th in g. B ut, h e s a y s, “ an in te rn ally c o nsis te n t s tr a te g y m ost of t h e t im e m ak es a w in nin g c o m pan y.” Each o f th ese le ad ers in veste d th e b est o f th em se lv es in th eir w ork . T hey id en tif ie d co m pellin g purp ose s, built org an iz atio ns to ach ie v e th em , an d ultim ate ly p ro duced d if fe re n ces th at re ally m atte re d . In d oin g s o , th ey g av e mean in g t o t h eir b usin esse s a n d a ls o t o t h em se lv es. Durin g th e la st d ay s o f th e E O P p ro gra m , I a sk th e c la ss to re ad a ra th er unusu al a rtic le b y th e la te H arv ard p hilo so phy p ro fe sso r R obert N ozic k . 19 I t pro pose s th at w e s u bstitu te th e d if fic u ltie s a n d p ote n tia l d re arin ess o f d aily liv in g w ith an E xperie n ce M ach in e, a k in d o f v ir tu al re ality co ntr a p tio n. Nozic k a sk s u s to c o nte m pla te a w orld w here w e c an a ch ie v e a n yth in g w e wis h , fu lly fo rm ed , s im ply b y p ro gra m min g a n d s te p pin g in to th is m ach in e. With th e ex perie n ce pre p are d fo r us, th ere are no decis io ns or actio ns re q uir e d o th er th an c h oosin g th e e x perie n ce its e lf . T hat m ean s n o s le ep le ss nig hts , n o h an d-w rin gin g, n o a g oniz in g c h oic es o r d ecis io ns. S im ply s te p in an d g o. As a p pealin g a s th is m ay s e em a t f ir s t, f e w a re te m pte d to a ccep t th e o ffe r. They r e co gniz e th at s u ch p re te n d r e ality w ould d ep riv e th em o f p artic ip atin g in th e v ery a ctio ns th at c re ate th e e x perie n ces. W hile th e p ro cess o f g ettin g fro m here to th ere is not alw ay s en jo yab le , an d th e en d is not alw ay s fa v ora b le , t h e u nderta k in g its e lf i s th eir s , i t’ s p art o f w ho t h ey a re . “ S hould i t be s u rp ris in g t h at w hat w e a re i s i m porta n t t o u s? ” a sk s N ozic k . “ W hy s h ould we b e c o ncern ed o nly w ith h ow o ur tim e is fille d , b ut n ot w ith w hat w e are ?” 20 Refle ctin g on th eir ow n liv es, EO Pers ofte n sa y th at th ey lik e th e acco unta b ility fo r th eir jo urn ey s, a n d th eir uniq uen ess . T hey lik e th e “ o ff- ro ad ,” s e re n dip ito us e x perie n ces th at w ould b e m is se d in a p re p ro gra m med ex is te n ce. Im ag in e if In gvar K am pra d h ad m is se d th e b oyco tt o f h is g oods an d th e P olis h s o lu tio n th at le d to a c o m ple te ly n ew w ay to c o m pete . O r if Dom en ic o D e S ole h ad c o ntin ued to p urs u e h is W ash in gto n la w c are er a n d not gotte n dra w n in to th e tr o uble d busin ess of a clie n t. Sure , th ese ex perie n ces c o uld b e d ia le d in , b ut f ir s t s o m eo ne e ls e w ould h av e to im ag in e th em , a n d e v en s o , th e e x perie n ces w ould n ot b e a u th en tic , th e re w ard s o f liv es t h at w ere a ctiv ely l iv ed . 21 Nozic k ’s E xperie n ce M ach in e is a f a n ta sy , o f c o urs e — at le ast s o f a r— but it o pen s a d oor to th in kin g d eep ly a b out th e m ean in g o f w hat y ou d o. H ow man y p eo ple h av e y ou m et w ho p lo w t h ro ugh l if e w ith out a s e n se o f p urp ose , who g o th ro ugh th e m otio ns, a p e th e w ay s o f o th ers , a n d g et th eir re w ard s fro m k eep in g sc o re ? T hey m ay b e h ig hly acco m plis h ed , b ut th ere ’s little au th en tic ab out th em . Sartr e cap tu re d it w ith his ch alle n gin g asse rtio n: “E very th in g h as b een fig ure d o ut, e x cep t h ow to liv e.” T he p oet T . S . E lio t had a n oth er a n gle : “ W e h ad t h e e x perie n ce, b ut w e m is se d t h e m ean in g.” In 2 002, T ony D eif e ll, a p hoto gra p her a n d g ra d uatin g M BA , z ero ed in o n th is q uestio n. H e a sk ed s o m e o f h is c la ssm ate s to r e sp ond to a q uestio n in a poem b y A m eric an a u th or M ary O liv er: “ T ell m e, w hat is it y ou p la n to d o with y our o ne w ild an d p re cio us lif e ?” T heir re sp onse s, alo ng w ith th eir photo gra p hs, b ecam e th e b asis fo r th e H arv ard B usin ess S ch ool “P ortr a it Pro je ct,” a t r a d itio n t h at h as c o ntin ued e v ery y ear s in ce. At th e c lo se o f m y E O P c o urs e , I s h are O liv er’s p oem w ith th e c la ss, a n d urg e th em to v is it th e P ortr a it P ro je ct. W hile th e e x hib itio n is fo cu se d o n peo ple s ta rtin g o ut in t h eir liv es, I b elie v e i t’ s e q ually i m porta n t th at w e k eep ask in g O liv er’s q uestio n o f o urs e lv es, i n o ur t h ir tie s, o ur f if tie s, o ur s e v en tie s. In r a is in g O liv er’s q uestio n, th e la st th in g I w ould w an t to d o is “ le ad th e witn ess” o r a tte m pt to e q uate b ein g a s tr a te g is t a s th e c en tr a l a n sw er to th e query . B ut, if y ou’re lik e th e E O Pers w ho r e sp ond w ith d eep e m otio n to th e poem , I s u sp ect th at m an y o f y ou w ill f in d th e c o nnectio n. I t h as to d o w ith th e k in d o f c o ntr ib utio n y ou w an t t o m ak e. The S um mer D ay Who m ade t h e w orld ? Who m ade t h e s w an, a nd t h e b la ck b ea r? Who m ade t h e g ra ssh opper? This g ra ssh opper, I m ea n— th e o ne w ho h as f lu ng h erse lf o ut o f t h e g ra ss, th e o ne w ho i s e a tin g s u gar o ut o f m y h and, who i s m ovin g h er j a w s b ack a nd f o rth i n ste a d o f u p a nd d ow n— who i s g azin g a ro und w ith h er e n orm ous a nd c o m plic a te d e yes. Now s h e l ifts h er p ale f o re a rm s a nd t h oro ughly w ash es h er f a ce. Now s h e s n aps h er w in gs o pen , a nd f lo ats a w ay. I d on’t k n ow e xa ctly w hat a p ra yer i s . I d o k n ow h ow t o p ay a tte n tio n, h ow t o f a ll d ow n in to t h e g ra ss, h ow t o k n eel i n t h e g ra ss, how t o b e i d le a nd b le sse d , h ow t o s tr o ll t h ro ugh t h e f ie ld s, whic h i s w hat I h ave b een d oin g a ll d ay. Tell m e, w hat e ls e s h ould I h ave d one? Doesn ’t e very th in g d ie a t l a st, a nd t o o s o on? Tell m e, w hat i s i t y o u p la n t o d o With y o ur o ne w ild a nd p re cio us l ife ? —Mary O liv er New a nd S ele cte d P oem s ( B osto n: B eaco n P re ss, 1 992) (C opyrig ht 1 992 b y M ary O liv er. R ep ro duced w ith P erm is sio n.) WIT H A ND W IT H OUT Y O U You, l ik e t h e b usin ess l e ad ers a n d M BA s I h av e t a u ght f o r m ore t h an t h ir ty years , m ust ask not ju st “W hat w ould th e w orld be lik e w ith out m y busin ess? ” b ut a ls o “ W hat w ould m y b usin ess b e l ik e w ith out a s tr a te g is t? ” 22 What if n o o ne in y our fir m ste p ped u p to th e ro le ? N o o ne w eig hed th e optio ns a n d c h ose w hat th e b usin ess w ould b e— why a n d to w hom it w ould matte r? W hat if n o o ne b uilt a sy ste m o f a d van ta g e th at e n ab le d it to d o so m eth in g in partic u la r, partic u la rly w ell? W hat if no one sc an ned th e horiz o n w ith v ig ila n t e y es, w atc h ed o ver th e f ir m , k ep t it v ib ra n t, a n d m oved it f o rw ard ? I k now th ese c o m pan ie s. Y ou d o, to o. T hey ’re a ll o ver th e w orld . T hey ’re th e la ck lu ste r b usin esse s th at se em to b e w aitin g fo r so m eth in g to h ap pen . They ’re th e d ow n-o n-th eir -h eels o nes, w here p eo ple a re w ork in g fe v eris h ly , but not m ak in g head w ay . T hey ’re th e ones plo ddin g fo rw ard , but nev er catc h in g o r c re atin g a w av e. T hey ’re th e o nes th at d on’t c o here , o r th at w ork ag ain st th em se lv es, u nderm in in g in o ne p art o f th e b usin ess w hat th ey ’re doin g i n a n oth er p art. They ’re n ot th e k in d o f c o m pan ie s m ost o f u s w ould b e e ag er to w ork f o r, or, f o r th at m atte r, to d o b usin ess w ith . T hey a re n ’t th e c o m pan ie s m ak in g a dif fe re n ce. By co ntr a st, m ost o f th e b usin ess le ad ers I h av e w ork ed w ith co m e to em bra ce t h e r o le o f t h e s tr a te g is t s e rio usly a n d w ith e n th usia sm . T hey l ik e t h e in sp ir a tio n th ey f e el a b out w hat th ey d o a n d w hy th at m atte rs . T hey lik e th e fe elin g t h at t h e w orld w ith a n d w ith out t h em a t t h e h elm w ould b e d if fe re n t. As a le ad er, if y ou ig nore o r u ndere stim ate y our c ru cia l, o ngoin g r o le a s a str a te g is t, so m eth in g e sse n tia l in y our b usin ess w ill b e m is sin g. A nsw ere d well o ver a l if e tim e, t h e q uestio ns a t t h e h eart o f s tr a te g y w ill h elp a c o m pan y pre v ail. A nsw ere d p oorly , o r n ot a t a ll, t h ey l e av e i t a d rif t a n d v uln era b le . Artic u la tin g a n d te n din g to a liv in g str a te g y is a h um an e n deav or in th e deep est se n se o f th e te rm . K eep in g a ll th e p arts o f a c o m pan y in b ala n ce while m ovin g a n e n te rp ris e fo rw ard is e x tr a o rd in arily d if fic u lt. E ven w hen th ey h av e s u bsta n tia l ta le n t a n d a d eep a p pre cia tio n f o r th e jo b, s o m e le ad ers ultim ate ly d on’t g et i t r ig ht. T heir l e g acie s s e rv e a s s o berin g r e m in ders o f t h e co m ple x itie s an d re sp onsib ilitie s o f ste w ard sh ip . O n th e o th er h an d, it is ex actly t h ese c h alle n ges t h at m ak e t h e t r iu m phs s o r e w ard in g. Fre q uen tly A sk ed Q uestio ns I r u n a n on pro fit. H ow r e le va n t, r e a lly , a re t h ese i d ea s f o r m e? A g re at s tr a te g y is v alu ab le to a n y o rg an iz atio n. A t its h eart, th e g oal is to g iv e a n o rg an iz atio n a diffe re n ce th at m atte rs , a n d e n ab le it to d o s o m eth in g o f im porta n ce p artic u la rly w ell. H av in g a s tr a te g y to d o th is is e v ery b it a s i m porta n t f o r a n onpro fit a s f o r a f o r-p ro fit b usin ess v en tu re . It w ould b e a h uge m is ta k e to th in k th at n onpro fits a re e x em pt fro m th e r ig ors o f c o m petitio n o r to a ssu m e th at h ow th ey p erfo rm a n d w hat th ey a d d w on’t co nsta n tly be ev alu ate d re la tiv e to alte rn ativ es. T o th e co ntr a ry ! C om petitio n i n t h e n on-p ro fit s p here i s a s i n te n se a s a n y, a n d m ost n onpro fits o pera te o n ev en tig hte r b udgets , w ith sc arc er re so urc es an d m ore d if fu se p ath w ay s b etw een th em , th eir c lie n ts , a n d th ose w ho fu nd th eir a ctiv itie s. T his m ak es t h e n eed f o r c la rity a n d e ffe ctiv en ess a ll t h at m uch g re ate r. As a n onpro fit, y ou n eed to h av e a g ood u nders ta n din g o f y our p urp ose — w hat you w ill do an d w hat you w on’t do— an d you m ust build an o rg an iz atio n th at is p ars im onio us a n d tig htly ta ilo re d to th at e n d. T hat m ean s y ou’ll als o need th e metr ic s one would dem an d of an y fir s t- c la ss o rg an iz atio n. A ll o f th is b eco m es p art o f w ho y ou a re : H one it c are fu lly . D oin g s o w ill n ot o nly m ak e y our o rg an iz atio n s tr o nger; it w ill a ls o h elp y ou t e ll y our s to ry t o a ll w ho n eed t o k now . I s t h ere s till a p la ce f o r S W OT a n aly sis a n d i f s o , w here ? W e a b so lu te ly s till n eed S W OT. I t’ s o ne o f th ose tim ele ss to ols th at p ull a l o t o f in fo rm atio n to geth er. It’ s a h ig h-le v el s u m mary o f a fir m a s a p la y er a n d o f th e c o m petitiv e e n vir o nm en t a t th e s a m e tim e. I t c an p ro vid e v alu ab le c o nte x t a s y ou r e fin e y our p urp ose a n d d ev elo p y our s tr a te g y. If y ou’re n ot fa m ilia r w ith it, a S W OT an aly sis lo oks at a fir m ’s o w n s tr e n gth s an d weak nesse s, an d th e opportu nitie s an d th re ats in its en vir o nm en t, s o m etim es u sin g a m atr ix l ik e t h e o ne b elo w . What’ s th e d if fe re n ce b etw een a v is io n , a m is sio n , a n d a p u rp ose . D o w e need a ll o f t h em ? A v is io n i s w hat y ou w an t y our b usin ess t o b e a t s o m e p oin t i n t h e f u tu re . I t may b e th at y ou w an t to g ro w f ro m a r e g io nal p la y er to a n atio nal p la y er, o r fro m a n atio nal p la y er to a g lo bal c o m petito r. O r th at y ou w an t to d ev elo p a se rv ic e b usin ess a lo ngsid e y our p ro duct o ffe rin gs. W hate v er it m ay b e, it is a pic tu re o f w here y ou w an t to b e d ow n th e r o ad , a n d it’ s u se fu l. A n ew C EO whom I w ork w ith w as r e cen tly g iv en t h is a d vic e: “ S ta rt o ut w ith a p ic tu re o f where y ou w an t t o e n d.” Mis sio n s ta te m en ts m ean d if fe re n t t h in gs t o d if fe re n t p eo ple a n d h av e b een use d in s o m an y d if fe re n t w ay s th at w e’v e lo st a c le ar s e n se o f w hat th ey a re or w hat th ey s h ould b e. S om e a re v ery b ro ad , e v en lo fty , a n d ta lk in v ag ue te rm s a b out h ow a b usin ess w ill c o ntr ib ute t o i ts c o m munity . O th ers a re m ore narro w a n d c lo se r to w hat I th in k o f a s a p urp ose , b ut o fte n fa il to c o nnect with t h e r e al e co nom ic s o f a b usin ess. To a v oid th is c o nfu sio n, I u se purp ose to d efin e w hy a f ir m w ill m atte r in its c o m petitiv e c o nte x t— th e v alu e it w ill a d d, a n d w hy th at sp ace w ill b e dif fe re n t becau se it ex is ts . T hat fre es up mis sio n to be use d as it w as orig in ally i n te n ded — as a c o m men t a b out t h e “ h ig her” p urp ose s o f a f ir m a n d its r e la tio nsh ip s w ith s o cie ty . How d o I g o a bou t a n aly zin g m y i n du str y ? You c an g ain a lo t o f tr a ctio n b y s ta rtin g w ith w hat y ou k now . G ath er a te am a n d ta lk a b out e ach o f th e fiv e fo rc es in tu rn , d ra w in g o n y our o w n ex perie n ce in y our in dustr y . A fte r id en tif y in g th e fa cts , c o nsid er w hat th ey mean . W ho h as t h e p ow er i n t h is c o nte x t? W hy? I s i t s h if tin g? H ow ? O vera ll, do th e f o rc es m ak e th e in dustr y a n a ttr a ctiv e p la ce to d o b usin ess? A re s o m e parts of th e m ark et le ss/m ore attr a ctiv e th an oth ers ? A re so m e pla y ers positio ned w ors e /b ette r t h an o th ers ? C ould y ou b e b ette r p ositio ned y ours e lf ? There is a lo t o f re le v an t d ata o uts id e y our fir m th at c an h elp y ou in th is pro cess: G overn m en t ag en cie s an d in dustr y tr a d e asso cia tio ns can be ex celle n t so urc es fo r fa cts an d sta tis tic s; pre p ack ag ed in dustr y su rv ey s pro duced b y c o nsu ltin g f ir m s o r i n vestm en t r e se arc h s e rv ic es l ik e S ta n dard & Poor’s o fte n i n clu de d eta ile d i n dustr y a n aly se s, a s d o m an y a n aly st r e p orts o n key i n dustr y p la y ers . A lo cal p ublic o r u niv ers ity lib ra ry s h ould h av e a ccess to p ublic atio ns a n d data b ase s th at c an a id in y our se arc h , p ro vid in g c o m para tiv e d ata , m ark et re se arc h an d an aly st re p orts , an d re cen t n ew sp ap er an d m ag azin e artic le s. Factiv a, H oover’s , L ex is N ex is , O neS ourc e, S ta n dard & P oor’s , T hom so n, an d B usin ess S ourc e C om ple te , am ong oth ers , pro vid e vario us kin ds of in dustr y – an d co m pan y-s p ecif ic in fo rm atio n an d are av aila b le in m an y lib ra rie s o r b y s u bsc rip tio n. For an ex celle n t dis c u ssio n of th ese an d oth er so urc es, se e “F in din g In fo rm atio n fo r In dustr y A naly sis ,” by Ja n W . R iv kin an d A nn C ulle n , Harv ard B usin ess P ublis h in g, N ote 7 08481, J a n uary 7 , 2 010. To s u cceed , m ust I b e a l o w -c o st p la yer? No. T here a re m an y d if fe re n t w ay s to a d d v alu e a n d m an y d if fe re n t w ay s to c o m pete . His to ric ally , M ic h ael P orte r id en tif ie d th re e g en eric str a te g ie s: lo w -c o st pro ducers ; dif fe re n tia to rs , who co m man d pre m iu m pric es fo r uniq ue pro ducts ; a n d f o cu se d f ir m s w ho c o m pete in v ery s p ecif ic m ark et s e g m en ts , an d co uld b e eith er h ig h- o r lo w -c o st p ro ducers . In p ra ctic e th ere are an in fin ite n um ber o f s tr a te g ie s th at a re v aria tio ns o n th ese th em es, a n d m an y su ccessfu l s tr a te g ie s a re n ot “ p ure p la y s.” N ev erth ele ss, th e n otio n o f g en eric str a te g ie s is a u se fu l in sig ht th at f o rc es o ne to th in k h ard a b out h ow a f ir m is ad din g v alu e, a n d t h e t r a d eo ffs t h at m ay r e q uir e . In g ro ups o f ex ecu tiv es, I’v e fo und th at re la tiv ely fe w cla im th at th eir co m pan ie s are lo w -c o st pro ducers who co m pete prim arily on pric e. Reco gniz in g th at, a m ajo rity , an d so m e alm ost by defa u lt, cla im to be dif fe re n tia to rs . T hey th in k o f th em se lv es in th at v ein , d esc rib e th em se lv es in th at v ein , a n d s o m e h av e th e e v id en ce to p ro ve it. B ut a fa ir n um ber p ain t allu rin g pic tu re s an d hav e ev ery th in g lin ed up, ex cep t cu sto m ers w ho ap pre cia te th eir “ u niq ue” v alu e a n d a re w illin g to p ay f o r it. T o e arn th at y ou need to h av e a sy ste m o f v alu e c re atio n th at e n ab le s y ou to p ro duce a n d mark et p ro ducts o r s e rv ic es w ith a t r u e diffe re n ce t h at m atte rs. T hat g en era lly le ad s to hig her co sts , but hig her co sts th at get you an d your cu sto m ers so m eth in g i n r e tu rn . Man y su ccessfu l sm all a n d m ed iu m -s iz e p la y ers fo cu s o n n arro w , ra th er th an w id e, g ro ups o f c u sto m ers , a n d m ak e d elib era te c h oic es to tig hte n th e sc o pe o f th eir b usin esse s. T his e n ab le s th em to z ero in o n th e id io sy ncra tic need s o f a p artic u la r s e t o f c u sto m ers a n d b uild s y ste m s o f v alu e c re atio n t h at meet th ose n eed s p artic u la rly w ell. D oin g s o c an d is tin guis h th em f ro m m ore gen eric p la y ers w ho co m pete m ore b ro ad ly , an d m ak e cu sto m ers , w hose id io sy ncra tic n eed s a re n ow a d dre sse d , b ette r o ff. Man y f ir m s s e em to g et b y w ith ou t tig h tly lin ked s y ste m s o f v a lu e c re a tio n . Why s h ou ld I m ake i t a p rio rity f o r m y b u sin ess? The in tr in sic v alu e o f a w ell- d ev elo ped sy ste m is p erh ap s e asie st to se e when a c o m petito r tr ie s to d uplic ate a s u ccessfu l f ir m . I f y ou h ad th e r e cip e, you co uld m ak e C oca-C ola , fo r in sta n ce, but you w ould n’t be ab le to duplic ate i ts b ra n d r e co gnitio n, i ts s u pply a n d d is tr ib utio n l in es, o r i ts p ric in g. These a re re so urc es a n d a ctiv itie s th e fir m h as h oned o ver d ecad es; th e fa ct th at th ey w ork to geth er in a tig htly lin ked s y ste m m ak es th em a ll th at m uch more d if fic u lt t o i m ita te . Years a g o, s o m e A m eric an in vesto rs tr ie d to c o py IK EA w ith a b usin ess calle d S T Ø R. (A ppare n tly th e lin e th ro ugh th e O w as s u ppose d to h in t a t a Scan din av ia n c o nnectio n.) S T Ø R m im ic k ed IK EA ’s lo ok a n d p ro ducts , b ut, afte r s o m e i n itia l s u ccess, i t c o uld n’t h old i ts o w n. 1 ST Ø R a n d o th er i m ita to rs f a ile d b ecau se t h ey c o uld c o py o nly s in gle p oin ts of ad van ta g e. A s A nders D ah lv ig , IK EA ’s gro up pre sid en t, sa id : “M an y co m petito rs c o uld tr y to c o py o ne o r tw o o f th ese th in gs. T he d if fic u lty is when y ou tr y to c re ate th e to ta lity o f w hat w e h av e. Y ou m ig ht b e a b le to co py o ur l o w p ric es, b ut y ou n eed o ur v olu m es a n d g lo bal s o urc in g p re se n ce. You h av e to b e a b le to c o py o ur S can din av ia n d esig n, w hic h is n ot e asy with out a S can din av ia n h erita g e. Y ou h av e t o b e a b le t o c o py o ur d is tr ib utio n co ncep t w ith th e fla t p ack . A nd y ou h av e to b e a b le to c o py o ur in te rio r co m pete n ce— th e w ay w e s e t o ut o ur s to re s a n d c ata lo gues.” 2 Success co m es fro m a co m pellin g purp ose , tig htly em bed ded in an in te rlo ck in g s y ste m o f v alu e c re atio n, a n d d oes s o i n a w ay t h at i s d if fic u lt f o r oth ers t o i m ita te . Shou ld I t r y t o d evelo p a s tr a te g y a lo n e o r w ith m y t e a m ? Your te am s h ould d efin ite ly b e p art o f th e e ffo rt— but m an y le ad ers f in d it use fu l to f ir s t w ork a lo ne th ro ugh th e s tr a te g y e x erc is e o utlin ed in c h ap te r 6 . You w ill lik ely f in d it a lo t h ard er th an y ou th ought, a n d th at e x perie n ce w ill in tr o duce y ou t o t h e p ro cess a n d h elp y ou i d en tif y t h e i s su es t h at a re l ik ely t o be m ost c h alle n gin g i n y our c o m pan y. T hen , g et y our t e am i n volv ed . Team s o fte n b eg in b y a tte m ptin g to w rite o ut a str a te g y sta te m en t fo r a busin ess. T hat’ s o kay , b ut d on’t sp en d to o m uch tim e o n it a t th e sta rt. It co m es m uch e asie r o nce y ou’v e n aile d th e str a te g y. T o d o th at, b eg in b y dev elo pin g a n i n itia l d efin itio n o f y our b usin ess’s p urp ose ( d on’t g et h ung u p on w ord s a t t h is p oin t) a n d w ork y our w ay t h ro ugh a s tr a te g y w heel, s p oke b y sp oke. T his is an ite ra tiv e pro cess— re fin em en ts w ill co m e. A s th e big build in g b lo ck s o f w hat y ou d o fa ll in to p la ce, re v is it th e p urp ose , a n d th en co m e b ack to th e w heel. A s y ou c lo se in o n a p urp ose , a n d th e a ctiv itie s a n d re so urc es to s u pport it, g o b ack to th e s tr a te g y s ta te m en t. B y th en it w ill b e cle ar w hat y ou n eed t o c o nvey . How l o n g s h ou ld w e e x pect t o s p en d o n t h e p ro cess? Sev era l m eetin gs o ver a tw o- to th re e-m onth w in dow s h ould b e s u ffic ie n t. If y ou’re m is sin g p ie ces o f in fo rm atio n, g iv e p eo ple th e re sp onsib ility to lo cate th em a n d b rin g th em to th e n ex t m eetin g. I t’ s im porta n t to k eep u p th e mom en tu m a n d m ove to w ard c o nclu sio n. T oo m an y c o m pan ie s fa ll in to a tr a p o f “ d is c u ssin g a n d d is c u ssin g a n d d is c u ssin g.” In its e lf th at c o uld b e a vir tu e, b ut s tr a te g y i s a b out c h oic es. R each in g c lo su re i s i m porta n t. Shou ld i t b e a d em ocra tic p ro cess? Even w ith y our t e am ’s h elp , a s t h e h ead o f t h e b usin ess y ou s h ould l e ad t h e effo rt. I t is v ita l to h ear o th ers ’ v ie w s a n d g et th eir in put a n d f e ed back , b ut if a c le ar a n d c o m pellin g d ir e ctio n d oesn ’t n atu ra lly e m erg e, y ou m ust m ak e t h e call. D on’t tr y to c re ate a s tr a te g y b y c o m mitte e. R ely in g o n c o nse n su s c an pro duce a le ss-th an -a m bitio us re su lt an d a str a te g y th at is m ore lik e a co m pro m is e t h an a n a m bitio us a sp ir a tio n. That sa id , a s w e d is c u sse d in C hap te r 8 , it is im porta n t to k eep in m in d fro m th e sta rt th at you w ill need th e co m mitm en t an d su pport of oth er man ag ers an d a w id e sw ath of em plo yees to ex ecu te a pla n . In his man ag em en t d ev elo pm en t w ork , T hom as S ap orito h as s e en to o m an y C EO s fa il b ecau se th ey a tte m pte d to c h arg e a h ead w ith out th is le v el o f b uy-in : “ A CEO m ay b e 1 00% c o rre ct w ith h is o r h er s tr a te g y, b ut w ith out d eep s u pport fo r it fro m th e b oard , se n io r te am , an d em plo yees, it d oesn ’t m atte r,” h e wro te . 3 Isn ’t i t r is k y t o p u t m y s tr a te g y s ta te m en t o n m y w eb site ? This is a c o m mon q uestio n e x ecu tiv es a sk : W on’t m y c o m petito rs f in d o ut what w e’re d oin g? In r e ality , if w ho y ou a re a n d w hat y ou d o is c le ar to y our c u sto m ers , it is als o p ro bab ly c le ar to y our c o m petito rs . A s w ith IK EA a n d C oca-C ola , if you’re re ally g ood a t w hat y ou d o, th ere sh ould b e o th er b arrie rs th at w ill mak e i m ita tio n d if fic u lt. The str a te g y w heel, w ith a ll its d eta il a b out y our sp ecif ic a ctiv itie s a n d re so urc es, is a n in te rn al w ork in g d ocu m en t. B ut w ho y ou a re a s a p la y er a n d why y ou m atte r s h ould n ot b e a s e cre t; in fa ct, it is s o m eth in g y ou s h ould bro ad cast. P eo ple o uts id e th e c o m pan y a s w ell a s in sid e n eed to k now w hat your b usin ess b rin gs t o t h e w orld a n d w hy i t m atte rs . How o fte n s h ou ld w e r e vis it t h e s tr a te g y? In a r e la tiv ely s ta b le e n vir o nm en t, b ig c h an ges m ay n ot o ccu r o fte n , b ut t h e str a te g y s h ould b e fo rm ally re v is ite d o n a re g ula r b asis , o nce a y ear o r s o . This m ig ht re su lt in m in or co urs e ad ju stm en ts o r a re fa sh io nin g o f so m e ele m en ts , o fte n m ovin g to w ard g re ate r e ffic ie n cy , a n d m ore e ffe ctiv en ess, in what you are alr e ad y doin g. In perio ds of m ore ra p id ch an ge— wheth er gen era te d in te rn ally o r e x te rn ally — th ese e x am in atio ns m ay b e le ss fo rm al, occu r m ore fre q uen tly , an d le ad to m ore sig nif ic an t ch an ge. In eith er sc en ario , to b e w orth w hile , th ese e x am in atio ns s h ould b e f e arle ss, th oro ugh, an d open dis c u ssio ns ab out ex actly how your fir m is fa rin g in th e mark etp la ce a n d o pportu nitie s f o r i m pro vem en t. Bey ond th e fo rm al p ro cesse s, th e le ad er o f a b usin ess— th e p ers o n w ho bears th e m ost re sp onsib ility fo r its lo ng-te rm h ealth an d v ita lity — sh ould co m e to se e ev ery th in g th at hap pen s to a co m pan y th ro ugh th e le n s of str a te g y: W hat d o th ese e v en ts , a ctiv itie s, o pportu nitie s, o r th re ats im ply fo r us? W hat d o th ey s a y a b out w ho w e a re a n d w hy w e m atte r? H ow s h ould w e re sp ond? T his k in d o f e n gag em en t d oesn ’t ta k e p la ce o n a s c h ed ule d b asis — it i s o ngoin g a n d r e q uir e s c o nsta n t v ig ila n ce. Reco m men ded R ead in g W an t to le arn m ore a b out th e id eas a n d c o m pan ie s d is c u sse d in th is b ook? H ere are so m e of m y fa v orite so urc es, with note s ab out why I’v e r e co m men ded t h em . I n dustr y A naly sis Com petitiv e Str a te g y: Tech niq ues fo r Analy zin g In dustr ie s and C om petito rs , b y M ic h ael E . P orte r. 1 980; re p rin t, N ew Y ork : F re e P re ss, 1 998. This is Porte r’s cla ssic w ork on in dustr y an aly sis . It id en tif ie s fiv e e co nom ic f o rc es th at in flu en ce in dustr y p ro fita b ility a n d h av e a g re at im pact o n in dustr y -le v el p ro fit. H e ta lk s a b out h ow to a n aly ze th ese fo rc es in y our i n dustr y a n d h ow t o p ositio n y our f ir m v is -à -v is t h eir i m pact. “T he F iv e C om petitiv e F orc es T hat S hap e S tr a te g y,” b y M ic h ael E . P orte r. H arv a rd B usin ess R evie w , J a n uary 1 , 2 008. This a rtic le is a s h ort, s tr a ig htf o rw ard p re se n ta tio n o f th e k ey id eas th at a re d ev elo ped in m ore d eta il in Com petitiv e S tr a te g y. F or a h ig h-le v el s u rv ey o f t h e t o pic , t h is i s a g ood p la ce t o s ta rt. F or a d eep er d iv e, g o t o t h e b ook i ts e lf . S tr a te g y “W hat is S tr a te g y?” by M ic h ael E . P orte r. Harv a rd B usin ess R evie w , N ovem ber 1 , 1 996. Porte r d is c u sse s s tr a te g y a s th e c re atio n o f a u niq ue p ositio n in volv in g a d is tin ct s e t o f a ctiv itie s. I t r e q uir e s o ne t o m ak e t r a d e-o ffs — to c h oose w hat t o d o a n d w hat n ot t o d o— an d d em an ds f its a cro ss a ll o f a c o m pan y’s a ctiv itie s. M an ag ers i n m y c o urs e s f in d t h e a rtic le b oth i n sp ir in g a n d p ra ctic al. “C re atin g C om petitiv e A dvan ta g e , ” by P an kaj G hem aw at an d Ja n W . R iv kin . H arv ard B usin ess S ch ool N ote , 9 -7 98-0 62, H arv ard B usin ess S ch ool Publis h in g, 2 006. This n uts -a n d-b olts c la ss n ote , o rig in ally w ritte n fo r M BA stu den ts , is a care fu l, str a ig htf o rw ard pre se n ta tio n ab out se v era l im porta n t str a te g y fra m ew ork s a n d h ow to u se th em in p ra ctic e. E xecu tiv e s tu den ts h av e f o und its q uan tita tiv e e x am ple s o f a d ded v alu e a n d r e la tiv e c o st a n aly sis p artic u la rly help fu l. Co-o petitio n , b y A dam B ra n den burg er an d B arry N ale b uff. N ew Y ork : Curre n cy /D ouble d ay , 1 996. This b ook sh ow s h ow g am e th eo ry c an h elp a str a te g is t th in k th ro ugh a fir m ’s in te ra ctio ns in a m ark et. It m oves b ey ond a z ero -s u m p ers p ectiv e o n co m petitio n— where one fir m ’s gain s are an oth er fir m ’s lo sse s— to a co opera tiv e vie w , w here fir m s cre ate m ore valu e by w ork in g w ith , not ag ain st, c u sto m ers , v en dors , a n d o th ers . It’ s a n im porta n t c o ntr ib utio n th at co uld c h an ge y our w ay o f th in kin g a b out th e g oals a n d in te n tio ns o f y our str a te g y. Blu e O cea n S tr a te g y: H ow to C re a te U nco nte ste d M ark et S pace a nd M ake Com petitio n Ir re le va nt , b y W . C han K im an d R en ée M au borg ne. B osto n: Harv ard B usin ess S ch ool P ublis h in g, 2 005. Bein g d if fe re n t i s o ne o f t h e d is tin guis h in g f e atu re s o f a g ood s tr a te g y. B ut how t o a ch ie v e t h at a n d, i n p artic u la r, h ow t o g o a b out i d en tif y in g t h e w ay s a fir m m ig ht p ositio n its e lf ap art fro m th e m asse s is a ch alle n ge. K im an d Mau borg ne m ak e h ead w ay o n t h is i m porta n t q uestio n. Cre a tin g Com petitiv e Adva nta ge: Cre a tin g and Susta in in g Superio r Perfo rm ance , b y M ic h ael E . P orte r. 1 985; re p rin t, N ew Y ork : F re e P re ss, 1998. This book is th e co m pan io n to Com petitiv e Str a te g y th at fo cu se s on in dustr y -le v el a n aly sis (s e e a b ove). H ere P orte r z ero s in o n in div id ual fir m s an d how to cre ate co m petitiv e ad van ta g e. M an y m an ag ers fin d it heav y re ad in g, b ut f o r t h ose w ho w an t t o d ig d eep ly i n to c o m petitiv e s tr a te g y, i t h as valu ab le i n sig hts . Man agem en t a n d L ea d ersh ip Good to G re a t, W hy S om e C om panie s M ake th e L ea p . . . a nd O th ers Don’t , b y J im C ollin s. N ew Y ork : H arp erC ollin s, 2 001. I o fte n p oll b usin ess m an ag ers in c la ss a b out th eir f a v orite b usin ess b ooks. Han ds d ow n, Good to G re a t to ps th e lis t. W hen a sk ed w hy th ey fin d it s o sp ecia l, th ey s a y th ey lik e th e b ala n ce C ollin s fin ds b etw een d oin g th e rig ht th in gs s tr a te g ic ally a n d g ettin g t h e r ig ht p eo ple o n t h e b us t o d o t h em . Lea dersh ip Is a n A rt , b y M ax D e P re e. N ew Y ork : C urre n cy /D ouble d ay , 2004. De Pre e w rite s w ith gre at co nfid en ce an d w is d om ab out le ad in g a co m pan y, an d in partic u la r ab out in volv in g an d in sp ir in g peo ple in th e mis sio n o f a b usin ess. Id en tif y in g V alu ab le F ir m R eso u rces “C om petin g on Reso urc es,” by Dav id J. Collis an d Cynth ia A. Montg om ery . Harv a rd B usin ess R evie w , J u ly 1 , 2 008 ( o rig in ally p ublis h ed i n Ju ly –A ugust 1 995). When m an ag ers tr y to id en tif y th e c o re c o m pete n ces in th eir fir m s, th ey ofte n p ro duce lo ng, u ndif fe re n tia te d la u ndry lis ts . T his a rtic le d is c u sse s w hat mak es c erta in k in ds o f re so urc es v alu ab le , a n d w hy it is im porta n t to h av e su ch r e so urc es a s p art o f y our s tr a te g y. Chasin g S ta rs: T he M yth o f T ale n t a nd th e P orta bility o f P erfo rm ance , b y Boris G ro ysb erg . P rin ceto n, N J: P rin ceto n U niv ers ity P re ss, 2 010. Any m an ag er w ho is te m pte d to blith ely sa y th at “p eo ple are our co m pan y’s m ost v alu ab le r e so urc e” s h ould r e ad th is b ook. T he r e se arc h f u lly ack now le d ges th e m an y co ntr ib utio ns o f in div id ual p erfo rm ers b ut sh ow s why th at ta le n t m ust be se en as part of a la rg er busin ess sy ste m , not so m eth in g s e p ara te f ro m i t. Dea lin g w it h T ech nolo gic a l C han ge “M eetin g t h e C halle n ge o f D is ru ptiv e C han ge,” b y C la y to n M . C hris te n se n an d M ic h ael O verd orf. Harv a rd B usin ess R evie w , M arc h 1 , 2 000. Chris te n se n ’s re se arc h o n d is ru ptiv e te ch nolo gie s c o unts a m ong th e m ost in flu en tia l m an ag em en t id eas o f th e la st tw en ty -fiv e y ears . T his a rtic le is a good i n tr o ductio n t o h is w ork a n d i n clu des r e fe re n ces t o h is o th er a rtic le s a n d books. IK EA Lea din g by D esig n— The IK EA Sto ry , by B ertil T ore k ull. N ew Y ork : Harp erB usin ess, 1 998. This is th e a u th orita tiv e b io gra p hy o n In gvar K am pra d , th e fo undin g o f IK EA , a n d th e p hilo so phy b eh in d th e fir m . It’ s a ra th er ro ugh tr a n sla tio n fro m S w ed is h , an d h ard ly o bje ctiv e, b ut it g iv es a clo se -u p v ie w o f th e en tr e p re n eu r, o fte n in h is o w n w ord s, a n d a lo t o f in fo rm atio n a b out th e r o le th at p urp ose p la y s a t I K EA . I t in clu des th e d ocu m en t “ A F urn itu re D eale r’s Testa m en t,” w hic h l a y s o ut I K EA ’s g uid in g p rin cip le s i n d eta il. Gucci The H ouse o f G ucci: A S en sa ti o nal S to ry o f M urd er, M adness, G la m our, and G re ed , b y S ara G ay F ord en . N ew Y ork : P ere n nia l, 2 001. This is th e s to ry o f a fa m ily b usin ess a n d a fa m ily s a g a s o s tr a n ge th at it se em s lik e f ic tio n. B ey ond its e n te rta in m en t v alu e, th e b ook s h ow s h ow e asy it is fo r a fir m to d rif t o ff c o urs e o ver s e v era l g en era tio ns, a n d w hy fa m ily dynam ic s c an a d d a n oth er l a y er o f c h alle n ge t o m an ag em en t. Apple Retu rn to th e L ittle K in gdom : S te ve J o bs, th e C re a tio n o f A pple , a nd H ow It C hanged t h e W orld , b y M ic h ael M oritz . N ew Y ork : O verlo ok P re ss, 2 009. There are m an y te rrif ic b ooks o n A pple th at co ver v ario us p ro ducts o r perio ds in th e d ev elo pm en t o f th e fir m . W hat I lik e a b out th is o ne is th at it giv es a n u nvarn is h ed l o ok a t A pple ’s e arlie st y ears — what i t w as r e ally l ik e— an d w hat w as w ork in g a n d w hat w asn ’t. A fo re w ord p uts th at in c o nte x t o f more re cen t dev elo pm en ts (M oritz ’s orig in al book on A pple , The L ittle Kin gdom , w as p ublis h ed in 1 984). E ntr e p re n eu rs w ho a re sta rtin g o ut m ay fin d i t i n sp ir in g t o s e e h ow h um ble i t a ll w as a t t h e s ta rt. Ste v e J o bs’s S ta n fo rd U niv ers ity c o m men cem en t s p eech , J u ne 1 4, 2 005. Tex t: n ew s.s ta n fo rd .e d u/n ew s/2 005/ju ne1 5/jo bs-0 61505.h tm . Vid eo : w ww.y outu be.c o m /w atc h ?v = D 1R -jK Kp3N A. In th is s p eech , title d “ L iv e B efo re Y ou D ie ,” J o bs d is c u sse s s o m e o f th e piv ota l p oin ts i n h is l if e . Note s I n tr o d uctio n : W hat I L ea rn ed i n O ffic e H ou rs 1 . This lin e of th in kin g w as in sp ir e d by a dis c u ssio n in Co-o petitio n by A .M . B ra n den burg er a n d B .J . N ale b uff ( N ew Y ork : D ouble d ay , 1 996, p . 4 7). C hap te r 1 : S tr a te g y a n d L ea d ersh ip 1 . R onald A . H eif e tz a n d M arty L in sk y, L ea dersh ip o n t h e L in e ( B osto n: H arv ard B usin ess S ch ool P re ss, 2 002), p p. 5 3–54. C hap te r 2 : A re Y ou a S tr a te g is t? 1 . T his d is c u ssio n d ra w s f ro m M ic h ael E . P orte r, C ynth ia A . M ontg om ery , a n d C harle s W . M oorm an , “ T he H ouse h old F urn itu re In dustr y in 1 986,” “ M asc o C orp (A ),” a n d “ M asc o C orp ( B ),” H arv ard B usin ess P ublis h in g, B osto n, 1 989. 2 . B esid es fa u cets , M asc o m ad e plu m bin g fittin gs, bath tu bs an d w hir lp ools , build ers ’ h ard w are , v en tin g a n d v en tila tin g e q uip m en t, in su la tio n p ro ducts , w ate r p um ps, w eig ht- d is tr ib utin g h itc h es, w in ch es, o ffic e f u rn itu re , b ra ss g if tw are , a n d p la stic w are . 3 . P orte r, M ontg om ery , a n d M oorm an , “ T he H ouse h old F urn itu re I n dustr y i n 1 986,” p p. 1 , 5 –6. 4 . Wall S tr e et T ra nsc rip t, A ugust 2 4, 1 987. 5 . M asc o A nnual R ep ort, 2 001. 6 . J o se p h S erw ach , “ M asc o C O O F ollo w s U nit,” Cra in ’s D etr o it B usin ess , M ay 2 7, 1 996, p . 3 . C hap te r 3 : T he M yth o f t h e S uper-M an ager 1 . R ic h ard F ars o n, Managem en t o f t h e A bsu rd ( N ew Y ork : F re e P re ss, 1 997), p . 1 5. 2 . J e n nif e r R ein gold , “ T he M asc o F ia sc o — The M asc o C orp . W as O nce O ne o f A m eric a’s M ost A dm ir e d C om pan ie s; N ot A nym ore ,” Fin ancia l W orld , O cto ber 2 4, 1 995. 3 . “ M en gel C om pan y ( A ),” H arv ard B usin ess S ch ool, 1 946. 4 . M ic h ael E . P orte r, “ U nders ta n din g I n dustr y S tr u ctu re ,” H arv ard B usin ess S ch ool c o urs e n ote N 9-7 07-4 93, A ugust 1 3, 2 007. 5 . T his d is c u ssio n o f in dustr y fo rc es d ra w s h eav ily o n th e se m in al w ork o f M ic h ael E . P orte r, in clu din g Com petitiv e S tr a te g y (N ew Y ork : F re e P re ss, 1998) an d “T he F iv e C om petitiv e F orc es T hat S hap e S tr a te g y,” Harv a rd B usin ess R evie w , J a n uary 1 , 2 008. 6 . L arg e s a m ple s tu die s h av e fo und th at in dustr y e ffe cts a cro ss th e e co nom y o n a v era g e a cco unt fo r betw een 10 an d 19 perc en t of th e varia n ce in fir m perfo rm an ce. In man ufa ctu rin g i n dustr ie s, t h eir e ffe ct i s o fte n a ro und 1 0 p erc en t; i n s o m e o th er s e cto rs t h eir im pact is m uch h ig her. In w hole sa le /r e ta il, lo dgin g/e n te rta in m en t, a n d se rv ic es, in dustr y acco unts fo r o ver 4 0 p erc en t o f v aria n ce in fir m p ro fita b ility . In a g ric u ltu re /m in in g a n d tr a n sp orta tio n, in dustr y acco unts fo r 3 9.5 0 p erc en t an d 2 9.3 5 p erc en t, re sp ectiv ely , o f varia n ce. S ee A . M . M cG ah an an d M . E . P orte r, “H ow M uch D oes In dustr y M atte r, Really ?” Str a te g ic M anagem en t J o urn al , S um mer 1 977, p p. 1 5–30. 7. T his f ra m ew ork i s d ue t o P orte r. S ee a b ove. 8. Ja ck W elc h , in te rv ie w ed by C hris to pher B artle tt on D ecem ber 16, 1999, H arv ard Busin ess S ch ool M ed ia S erv ic es, T ap e N o. 1 0095. 9. W arre n B uffe tt, B ra in y Q uote .c o m , a ccesse d A ugust 1 5, 2 011. 10. W . Chan K im an d Ren ée M au borg ne, Blu e O cea n Str a te g y: H ow to Cre a te Unco nte ste d M ark et Space and M ake th e C om petitio n Ir re le va nt (B osto n: H arv ard Busin ess S ch ool P ublis h in g, 2 005). 11. R ein gold , “ T he M asc o F ia sc o .” Chap te r 4 : B eg in w it h P urp ose 1. “IK EA : H ow th e S w ed is h R eta ile r B ecam e a G lo bal C ult B ra n d,” Busin essW eek , Novem ber 1 4, 2 005. 2. B ertil T ore k ull, Lea din g b y D esig n: T he I K EA S to ry ( N ew Y ork : H arp erB usin ess, 1 999), p. 1 0. T he b ook w as o rig in ally p ublis h ed in S w ed en a s His to rie n o m I K EA (T he S to ry o f IK EA ) i n 1 998. 3. T ore k ull, Lea din g b y D esig n, p . 1 0. 4. I b id ., p . 2 4. 5. I b id ., p p. 1 48–49. 6. R obert M cK ee, Sto ry ( N ew Y ork : H arp erC ollin s, 1 997), p p. 1 81–207. 7. T ore k ull, Lea din g b y D esig n , p . 5 0. 8. I K EA 2 010 A nnual R ep ort. 9. E lle n L ew is , Gre a t I K EA! , ( U K: M ars h all C av en dis h , 2 008) p . 3 9. 10. In gvar K am pra d , “ A F urn itu re D eale r’s T esta m en t,” q uote d in T ore k ull, Lea din g b y Desig n , p . 2 28. 11. I b id ., p p. 2 28, 2 31. 12. T hese e stim ate s a re f o r 2 004–2009 a n d c o m e f ro m “ IK EA : F la t- p ack A cco untin g,” The Eco nom is t , M ay 1 3, 2 006 (e stim ate s n et p ro fit m arg in o f n early a n 1 1 p erc en t re tu rn fo r 2004); K erry C ap ell, “ IK EA : H ow th e S w ed is h R eta ile r B ecam e a G lo bal C ult B ra n d,” Busin essW eek , N ovem ber 1 4, 2 005 (e stim ate s n et p ro fit m arg in o f 9 .6 p erc en t fo r 2 005, desc rib ed b y a n a n aly st a s “ am ong th e b est in h om e fu rn is h in gs” ; “ Ik ea F ore casts ‘F la t’ Pro fits f o r 2 010,” Loca l , S w ed is h e d itio n, F eb ru ary 2 2, 2 010 (e stim ate s n et p ro fit m arg in of 2 2.9 p erc en t f o r 2 009). 13. R odd W ag ner a n d J a m es K . H arte r, The E le m en ts o f G re a t M anagin g (W ash in gto n, DC: G allu p P re ss, 2 006), p . 1 17. 14. M ic h ael P orte r m ak es a s tr o ng a rg um en t a b out th e v alu e o f tr a d e-o ffs in s tr a te g y. S ee “W hat I s S tr a te g y?” Harv a rd B usin ess R evie w , N ovem ber 1 , 1 996 ( a ls o a v aila b le a s H BR Rep rin t 9 6608). 15. IK EA V is io n Sta te m en t, quote d in Y oungm e M oon, “IK EA In vad es A m eric a,” Harv ard B usin ess S ch ool P ublis h in g, S ep te m ber 1 4, 2 004, p . 5 . 16. T hese a d ded -v alu e c h arts w ere d ev elo ped b y th e s tr a te g y te ach in g g ro up a t H arv ard Busin ess S ch ool a n d a re b ase d o n th e p io neerin g w ork o f A dam B ra n den burg er, B arry Nale b uff, a n d H arb orn e S tu art. S ee A . M . B ra n den burg er a n d H . W . S tu art, “ V alu e-B ase d Busin ess S tr a te g y,” Jo urn al o f E co nom ic s a nd M anagem en t S tr a te g y 5 (1 996), p p. 5 –24. Base d o n a su ggestio n b y A dam B ra n den burg er, an d to cre ate a p ara lle l w ith th e lin e la b ele d “ W illin gness to P ay ,” I la b el th e b otto m most lin e o n th e c h art “ W illin gness to Supply ” ( n ot “ O pportu nity C ost,” a s in th e B ra n den burg er a n d S tu art a rtic le ). T hese id eas are a ls o d ev elo ped in A . M . B ra n den burg er a n d B . J . N ale b uff, Co-o petitio n (N ew Y ork : Double d ay , 1 996). 17. I b id . 18. M oon, “ IK EA I n vad es A m eric a.” 19. P an kaj G hem aw at a n d Ja n W . R iv kin , “ C re atin g C om petitiv e A dvan ta g e,” H arv ard Busin ess S ch ool c o urs e n ote 7 98-0 62, F eb ru ary 2 5, 2 006, p . 7 . 20. T his w onderfu l q u estio n a ris e s f ro m a d is c u ssio n in B ra n den burg er a n d N ale b uff, Co- opetitio n , p. 47ff, w here th ey dis c u ss, am ong oth er th in gs, th e cla ssic m ovie It’ s a Wonderfu l L ife a n d a sk “ W hat i s y our a d ded v alu e?” Chap te r 5 : T urn P urp ose i n to R ea lit y 1. I w as f ir s t in tr o duced to th e G ucci s to ry th ro ugh D av id Y offie ’s c ase o n th e c o m pan y: “G ucci G ro up N .V . (A ),” H arv ard B usin ess P ublis h in g, B osto n, M ay 1 0, 2 001. H e h as sin ce w ritte n a s e co nd c ase o n t h e c o m pan y, “ G ucci G ro up i n 2 009,” J a n uary 1 4, 2 009. 2. S ara G ay F ord en , The H ouse o f G ucci ( N ew Y ork : P ere n nia l, 2 001), p . 2 51. 3. T he id ea to illu str a te G ucci’ s d ev elo pm en t o ver tim e in th is w ay is d ra w n fro m D av id Yoffie ’s o rig in al t e ach in g p la n f o r t h e G ucci c ase . 4. In “ W hat Is S tr a te g y,” Harv a rd B usin ess R evie w , N ovem ber– D ecem ber 1 996, p . 6 2, Porte r i n tr o duces t h e i d ea o f a P ro ductiv ity F ro ntie r t o i d en tif y f ir m s i n a n i n dustr y t h at a re best in c la ss. A fir m ’s p artic u la r lo catio n o n th e fro ntie r id en tif ie s its p ositio nin g in th e in dustr y ; if a fir m is o ff th e fro ntie r it m ean s eith er th at its co sts are to o h ig h o r its nonpric e-b uyer v alu e d eliv ere d is to o lo w , re la tiv e to o th er p la y ers in th e in dustr y . T he ch arts u se d in th is c h ap te r a re in sp ir e d b y P orte r’s w ork , b ut th e title s a n d a x es h av e b een modif ie d . 5. F ord en , The H ouse o f G ucci , p . 1 19. 6. L uis a Z arg an i, “ T ru e C onfe ssio ns,” Wom en ’s W ea r D aily , J u ne 5 , 2 006, p . 3 0. 7. F ord en , The H ouse o f G ucci , p . 6 3. 8. I b id ., p . 1 10. 9. I b id ., p . 1 55. 10. A s q uote d in D av id Y offie , “ G ucci G ro up N .V . (A ),” H arv ard B usin ess P ublis h in g, Ja n uary 1 4, 2 009, p . 3 . 11. F ord en , The H ouse o f G ucci , p . 1 42. 12. Y offie , “ G ucci G ro up N .V . ( A ),” p . 7 . 13. F ord en , The H ouse o f G ucci , p . 1 67. 14. I t w as s o on th e e n d o f M au riz io , to o. A y ear a n d a h alf la te r h e w as m urd ere d b y a h it man h ir e d b y h is e x -w if e . 15. A uth or’s i n te rv ie w w ith D e S ole , A ugust 1 0, 2 010. 16. I b id . 17. I b id . 18. Y offie , “ G ucci G ro up N .V . ( A ),” p . 9 . 19. I b id . 20. F ord en , The H ouse o f G ucci , p . 2 55. 21. I b id ., p . 2 59. 22. G ucci.c o m , u nder G ucci h is to ry , 1 990s. 23. C re d it S uis se F ir s t B osto n E quity R ese arc h , “ G ucci G ro up N .V .,” M arc h 9 , 2 001, p . 3 . 24. L au re n G old ste in , “ S ty le W ars ,” Tim e , A pril 9 , 2 001. 25. A m y B arre tt, “ F ash io n M odel: G ucci R ev iv al S ets S ta n dard i n M an ag in g T re n d-H eav y Secto r: I ta lia n H ouse B uffs B ra n d b y F ocu sin g o n Q uality , E xclu siv ity a n d I m ag e— Hid den Costs o f C ach et? ” W all S tr e et J o urn al E uro pe , A ugust 2 5, 1 997. 26. F ord en , The H ouse o f G ucci , p . 1 85. 27. I b id ., p . 1 42. 28. A uth or’s i n te rv ie w w ith D e S ole , A ugust 1 0, 2 010. 29. C re d it S uis se , “ G ucci G ro up N .V .,” p . 1 4. 30. A uth or’s i n te rv ie w w ith D e S ole , A ugust 1 0, 2 010. 31. C re d it S uis se , “ G ucci G ro up N .V .,” p . 1 0. 32. A uth or’s i n te rv ie w w ith D e S ole , A ugust 1 0, 2 010. 33. I b id . 34. Y offie , “ G ucci G ro up N .V . ( A ),” p . 8 . 35. A uth or’s i n te rv ie w w ith D e S ole , A ugust 1 0, 2 010. 36. P orte r, “ W hat I s S tr a te g y?” 37. A uth or’s i n te rv ie w w ith D e S ole , A ugust 1 0, 2 010. 38. F ord en , The H ouse o f G ucci , p p. 3 22–24. 39. Wall S tr e et J o urn al , M arc h 6 , 2 003. 40. A uth or’s i n te rv ie w w ith D e S ole , A ugust 1 0, 2 010. 41. “ T he T urn aro und C ham p o f H au te C outu re ,” Fortu ne , N ovem ber 1 2, 1 997, p p. 3 05–6. 42. P orte r m ak es t h is p oin t p ers u asiv ely i n “ W hat I s S tr a te g y?” Chap te r 6 : O wn Y ou r S tr a te g y 1. T he s tr a te g y e x erc is e d esc rib ed h ere , in p artic u la r th e s e ctio n o n d ev elo pin g a s tr a te g y sta te m en t, o w es a g re at tr ib ute to th e w ork o f m y la te c o lle ag ue M ic h ael G . R uksta d . A posth um ous a rtic le d esc rib in g th at w ork , D av id G . C ollis a n d M ic h ael G . R uksta d ’s “ C an You S ay W hat Y our S tr a te g y I s ? ” w as p ublis h ed in th e Harv a rd B usin ess R evie w , A pril 1 , 2008. M ic h ael a n d I w ork ed t o geth er o n t h e f ir s t i te ra tio n o f t h e s tr a te g y e x erc is e i n E O P. 2. J a m es C ham py, “ T hre e W ay s to D efin e a n d I m ple m en t a C orp ora te S tr a te g y,” J u ly 1 3, 2006, c o lu m n a ccesse d v ia S earc h cio .c o m , A ugust 3 1, 2 011. 3. h ttp ://w ww.p g.c o m , a ccesse d A ugust 3 1, 2 011. 4. h ttp ://w ww.n ik e.c o m , a ccesse d S ep te m ber 2 2, 2 007. 5. h ttp ://w ww.g oogle .c o m , a ccesse d S ep te m ber 2 2, 2 007. 6. t tp ://w ww.b m wgro up.c o m , a ccesse d J a n uary 6 , 2 011. 7. E lz in ga, K en neth G . an d D av id E . M ills , “L eeg in an d P re co m petitiv e R esa le P ric e Main te n an ce,” The A ntitr u st B ulle tin V olu m e 5 5, n o. 2 , s u m mer 2 010. 8. I b id . S ee a ls o : S te p hen L ab ato n, “ C en tu ry -O ld B an L if te d o n M in im um R eta il P ric in g,” New Y ork T im es , J u ne 2 0, 2 007. 9. h ttp ://w ww.F ourS easo ns.c o m , a ccesse d S ep te m ber 2 2, 2 007. 10. “ A bout t h e E co nom is t G ro up,” h ttp ://w ww.E co nom is t.c o m , a ccesse d A ugust 3 1, 2 011. 11. h ttp ://w ww.D octo rs w ith outb ord ers .o rg , a ccesse d J u ly 1 2, 2 011. Chap te r 7 : K eep I t V ib ra n t 1. D av id Y offie h as d ev elo ped a s e rie s o f e x celle n t A pple c ase s o ver th e y ears th at a llo w ex ecu tiv es to e x am in e th e c o m pan y a n d th e in dustr y a s it w as a t v ario us p oin ts in tim e. See, fo r e x am ple , “ A pple In c in 2 010,” “ A pple C om pute r, 2 006,” “ A pple C om pute r in 2002,” “A pple C om pute r 1995,” an d “R esh ap in g A pple ’s D estin y— 1992,” H arv ard Busin ess P ublis h in g, B osto n. 2. M ic h ael M oritz , Retu rn to th e L ittle K in gdom (N ew Y ork : O verlo ok P re ss, 2009), p. 1 83. I n 1 984 M oritz p ublis h ed h is o rig in al h is to ry o f A pple , The L ittle K in gdom . 3. A la n D eu ts c h m an , The S eco nd C om in g o f S te ve J o bs (N ew Y ork : B ro ad w ay B ooks, 2000), p . 5 4. 4. M oritz , Retu rn t o t h e L ittle K in gdom , p . 1 94. 5. I b id ., p p. 2 17–18. 6. I b id ., p . 2 42. 7. I b id ., p . 2 57. 8. I b id ., p . 2 76. 9. I b id ., p . 2 06. 10. I b id ., p . 2 68. 11. I b id ., p . 3 04. 12. J e ffre y S . Y oung a n d W illia m L . S im on, iC on ( H oboken , N J: W ile y , 2 005), p . 8 0. 13. O wen W . L in zm ay er, Apple C onfid en tia l 2 .0 (S an F ra n cis c o : N o S ta rc h P re ss, 2 008), pp. 7 7–78. 14. L ee B utc h er, Accid en ta l M illio nair e : T he R is e and F all of Ste ve Jo bs at A pple Com pute r ( N ew Y ork : K nig hts b rid ge, 1 990), p . 1 74. 15. Y oung a n d S im on, iC on , p . 7 0. 16. L in zm ay er, Apple C onfid en tia l 2 .0 , p . 1 54. 17. M oritz , Retu rn t o t h e L ittle K in gdom , p . 3 32. 18. L in zm ay er, Apple C onfid en tia l 2 .0 , p . 1 57. 19. I b id ., p . 1 58. 20. h ttp ://J e re m yre im er.c o m /p ostm an /n ode/3 29. 21. L in zm ay er, Apple C onfid en tia l 2 .0 , p . 1 61. 22. Y offie , “ A pple C om pute r, 2 006,” p . 4 . 23. B re n t S ch le n der, “ S om eth in g’s R otte n i n C upertin o,” Fortu ne , M arc h 3 , 1 997, p . 1 00. 24. L in zm ay er, Apple C onfid en tia l 2 .0 , p p. 2 63–69. 25. J o se p h A . S ch um pete r, Capita lis m , S ocia lis m a nd D em ocra cy ( 1 943; r e p rin te d , T ay lo r & F ra n cis e -lib ra ry , 2 003), p . 8 4. 26. B ear S te arn s, “ C om pute r H ard w are ,” E quity R ese arc h , J u ly 2 002. 27. P ete r R oja s, “ W hy I B M S old I ts P C B usin ess t o L en ovo,” Engadget , J a n uary 1 , 2 005. 28. M oritz , Retu rn t o t h e L ittle K in gdom , p . 2 99. 29. I b id . 30. Q uote d i n L in zm ay er, Apple C onfid en tia l 2 .0 , p . 2 47. 31. I b id . 32. D eu ts c h m an , The S eco nd C om in g o f S te ve J o bs , p p. 5 4–55. 33. L in zm ay er, Apple C onfid en tia l 2 .0 , p . 2 10. 34. M oritz , Retu rn t o t h e L ittle K in gdom , p . 1 4. 35. Q uote d i n D eu ts c h m an , The S eco nd C om in g o f S te ve J o bs , p . 1 83. 36. Q uote d i n L in zm ay er, Apple C onfid en tia l 2 .0 , p . 2 12. 37. A dam L ash in sk y, “ T he D ecad e o f S te v e,” Fortu ne , N ovem ber 2 3, 2 009, p . 9 5. 38. Q uote d i n L in zm ay er, Apple C onfid en tia l 2 .0 , p . 2 92. 39. Q uote d i n i b id ., p . 2 89 ( o rig in ally a p peare d i n Fortu ne, F eb ru ary 1 9, 1 996). 40. Q uote d i n i b id ., p . 1 76. 41. L ash in sk y, “ T he D ecad e o f S te v e,” p . 9 5. 42. D eu ts c h m an , The S eco nd C om in g o f S te ve J o bs , p . 2 49. 43. L in zm ay er, Apple C onfid en tia l 2 .0 , p p. 2 95–98. 44. L ean der K ah ney , In sid e S te ve’s B ra in ( N ew Y ork : P ortf o lio , 2 008), p p. 1 85–88. 45. Q uote d i n S te v en L ev y, The P erfe ct T hin g ( N ew Y ork : S im on & S ch uste r, 2 007), p . 5 1. 46. Q uote d i n L ash in sk y, “ T he D ecad e o f S te v e,” p . 9 6. O rig in al i n Tim e m ag azin e i n e arly 2002. 47. “ S hip o f T hese u s,” Wik ip ed ia , a ccesse d A ugust 1 9, 2 011. 48. L ev y, The P erfe ct T hin g , p p. 7 3–74. 49. I b id ., p . 3 . 50. A pple 1 0-K , f ile d O cto ber 2 7, 2 010, p . 8 1. 51. J a re d N ew m an , “ A pple iC lo ud: W hat It Is , a n d W hat It C osts ,” T oday a t P C W orld blo g, p oste d A ugust 2 , 2 011. 52. N PD G ro up I n c., “ W in dow s P hone 7 O ff t o a S lo w S ta rt i n F ourth Q uarte r, a s A ndro id Sm artp hone M ark et- S hare L ead I n cre ase s,” p re ss r e le ase , J a n uary 3 1, 2 011. Chap te r 8 : T he E sse n tia l S tr a te g is t 1. H eik e B ru ch an d S um an tr a G hosh al, A B ia s fo r A ctio n : H ow E ffe ctiv e M anagers Harn ess T heir W illp ow er, A ch ie ve R esu lts , and Sto p W astin g T im e (B osto n: H arv ard Busin ess S ch ool P re ss, 2 004). 2. Ste p hen R. Covey , The Seven H abits of H ig hly Effe ctiv e Peo ple , N ew Y ork : Fir e sid e/S im on & S ch uste r, 1 989. 3. R ic h ard S w ed berg , “R eb uild in g S ch um pete r’s T heo ry o f E ntr e p re n eu rs h ip ,” C orn ell Univ ers ity , M arc h 6 , 2 007, p . 7 . 4. S ch um pete r, 1 911, a s q uote d i n i b id ., p . 7 . 5. S w ed berg , “R eb uild in g S ch um pete r’s T heo ry o f E ntr e p re n eu rs h ip ,” p . 8 . T hese are Sw ed berg ’s w ord s e x pla in in g a n d s u m mariz in g w hat S ch um pete r h ad w ritte n . 6. S ey m our T ille s, “ H ow t o E valu ate C orp ora te S tr a te g y,” Harv a rd B usin ess R evie w , J u ly – August, 1 963. 7. Je an -P au l S artr e , “ E xis te n tia lis m a n d H um an is m ,” Basic W ritin gs , e d ite d b y S te p hen Prie st ( F lo re n ce, K Y: R outle d ge, 2 001), p . 4 2. 8. I b id ., p . 2 9. 9. H elm uth v on M oltk e, q uote d in Cla use w itz o n S tr a te g y: I n sp ir a tio n a nd I n sig ht fr o m a Maste r S tr a te g is t , e d ite d b y T ih a v on G hyczy e t a l. ( N ew Y ork : W ile y , 2 001), p . 5 5. 10. M arth a C . N ussb au m , The F ra gility o f G oodness: L uck a nd E th ic s in G re ek T ra ged y and P hilo so phy ( C am brid ge: C am brid ge U niv ers ity P re ss, 2 001), p . 5 9. 11. I b id ., p . 8 0. 12. h ttp ://w ww.b ra in yquote .c o m . 13. M ax D e P re e, Lea dersh ip I s a n A rt ( N ew Y ork : C urre n cy /D ouble d ay , 2 004), p . 1 00. 14. T hom as J. S ap orito , “ E very C EO N eed s a n E xecu tiv e L is te n er,” F orb es L ead ers h ip Foru m , J u ly 2 1, 2 011. 15. D e P re e, Lea dersh ip I s a n A rt , p . 1 02. 16. D e P re e, Lea dersh ip I s a n A rt, p . 1 8. 17. C . R ola n d C hris te n se n , K en neth R . A ndre w s, a n d J o se p h L . B ow er, in th eir te x tb ook on g en era l m an ag em en t, Busin ess P olic y: T ext a nd C ase s (H om ew ood, IL : R . D . Irw in , 1973), p p. 1 6–18, d esc rib ed o ne o f th e ro le s o f th e C EO a s “ arc h ite ct o f o rg an iz atio nal purp ose .” I p re fe r th e te rm “ g uard ia n o f o rg an iz atio nal p urp ose ” b ecau se it e n co m passe s both fo rm ula tio n an d im ple m en ta tio n, an d becau se it im plie s a more ongoin g re sp onsib ility . 18. T his is re m in is c en t o f th e a d vic e R ain er M aria R ilk e g iv es in h is c la ssic Lette rs to a Young P oet. 19. R obert N ozic k , “ T he E xperie n ce M ach in e,” in Anarc h y, S ta te , a nd U to pia ( N ew Y ork : Basic B ooks, 1 974), p p. 4 2–45. 20. I b id . 21. D av id B ag gett an d S haw n K le in , Harry P otte r and P hilo so phy: If A ris to tle R an Hogw arts ( C hic ag o: O pen C ourt, 2 004), c h ap te r 7 , “ T he E xperie n ce M ach in e: T o P lu g I n or N ot t o P lu g I n .” T his e ssa y t a lk s a b out a n a u th en tic l if e a s o ne t h at i s a ctiv ely l iv ed . 22. S ee f in al e n dnote i n C hap te r 4 . T he f ir s t q uestio n h ere — ab out w hat t h e w orld w ould b e lik e w ith out y our b usin ess— is f ro m B ra n den burg er a n d N ale b uff’s b ook, Co-o petitio n. Freq uen tly A sk ed Q uestio n s 1. IK EA w as so a n gere d b y w hat it sa w a s a d elib era te a tte m pt to im ita te its lo ok a n d pro ducts th at it s u ed S T Ø R, fo rc in g th e fir m to c h an ge s o m e o pera tio ns. In tim e, S T Ø R was u nab le t o o pera te p ro fita b ly a n d a p pro ach ed I K EA f o r h elp . I K EA a cq uir e d t h e f ir m i n 1992. 2. C hris to pher B ro w n-H um es, “ A n E m pir e B uilt o n a F la t- P ack ,” FT.c o m , N ovem ber 2 3, 2003, p . 1 . 3. S ap orito , i b id ., “ E very C EO N eed s a n E xecu tiv e L is te n er.” In dex T he p ag in atio n o f th is ele ctr o nic ed itio n d oes n ot m atc h th e ed itio n fro m w hic h it w as cre ate d . T o lo cate a sp ecif ic p assa g e, p le ase u se th e se arc h f e atu re o f y our e -b ook r e ad er. A A guilu z, I X , A m ab le “ M ig uel,” 9 3–95, 1 44–45 In k f o r L ess P ro fe ssio nal ( b usin ess c u sto m er d iv is io n) a n d, 1 04, 1 06 In k f o r L ess s tr a te g y s ta te m en t a n d, 1 02 air lin e i n dustr y av era g e p ro fita b ility o f, 2 6 fir m e ffe ct, 4 7 How F ir m s D if fe r: F ir m E ffe cts i n F our D if fe re n t I n dustr ie s, 48 A ja y i, R ic h ard , 8 2 A lle n , P au l, 1 13 A ltr ia t o bacco , 4 7 A m azo n, 1 10 A m elio , G il, 1 18–19 A m REIT , 8 5–87 Am REIT P ortf o lio : D em ogra p hic P ositio nin g, 86 bro ker-d eale r b usin ess s h ut- d ow n a n d, 1 04, 1 40 fo rm ula tin g a s tr a te g y s ta te m en t, 8 5 Irre p la ceab le C orn er C rite ria , 8 6, 87 metr ic s ( d ata ) o ver i n tu itio n a n d, 8 5–86 slo gan o f ( “ Irre p la ceab le C orn er C om pan y”), 8 5, 8 6 te am a p pro ach a n d i m ple m en tin g m an ag em en t s tr a te g ie s, 1 43 A pple , 1 10–31, 1 70–71n 1 Am elio l e ad s, 1 18–19 Apple I I, 1 11–12, 1 20 Apple I II a s f ir s t f a ilu re , 1 13, 1 20 arro gan ce o f, 1 21 co m petitio n a n d, 1 29 cre ativ e d estr u ctio n a n d, 1 20, 1 27 cu sto m ers a n d, 1 12, 1 14, 1 25 “d if fe re n ce t h at m atte re d ” a n d, 1 12, 1 24 dig ita l h ub s tr a te g y, 1 25 ev olu tio n o f i n dustr y a n d c h an ge i n s tr a te g y, 1 29, 1 30–31, 1 41 Fir e W ir e , 1 26 fu nctio nal a d van ta g es o ver o th er e arly c o m pute r m ak ers , 1 12 iC lo ud, 1 28, 1 29 iM ac, 1 24–25 iM ovie , 1 26 iP ad , 1 28, 1 29 iP hone, 1 27–28, 1 29 iP od, 1 26, 1 27, 1 28 iT unes, 1 25, 1 27 Jo bs l e av es c o m pan y, 1 16 Jo bs r e tu rn s, 1 19, 1 24, 1 30–31 Jo bs r e v iv es a n d r e cre ate s c o m pan y, 1 24–31 Lis a , t e ch nolo gy a d van ces a n d m ark etin g p ro ble m s, 1 14–15, 1 20 lo ss o f a d if fe re n ce t h at m atte re d , 1 19–22 Macin to sh , 1 14, 1 15–16, 1 17, 1 20 Mac O S, 1 19, 1 25, 1 26 man ag em en t s ty le c h an ge, 1 24 mark et s h are s lid e, 1 17 mark et v alu e ( 1 980), 1 12 mark et v alu e ( 2 010), 1 28 nam e c h an ge a n d s h rin kin g c o m pute r b usin ess, 1 28 New to n P D A, 1 17 NeX T p urc h ase d b y, 1 19, 1 23–24 pro prie ta ry t e ch nolo gy a n d, 1 13, 1 14, 1 18 purp ose c h an ge a t ( 2 001), 1 25, 1 27 purp ose o ut o f s y nc w ith i n dustr y f o rc es, 1 21–22 purp ose s ta te m en t ( 1 980), 1 11 re co m men ded r e ad in g, 1 63 re ta il s to re s, 1 25 Scu lle y l e ad s, 1 15–16, 1 17 Spin dle r l e ad s, 1 17–18 Sto ck P ric e c h art, 128 su per-m an ag er e ra , 1 16–19, 1 21 Arn au lt, B ern ard , 7 5 B Beatr ic e F oods, 2 5 Bia s f o r A ctio n, A ( B ru ch a n d G hosh al) , 1 35 BM W sta te m en t o f p urp ose , 8 4 valu e c re atio n a n d, 5 5 BP ( B ritis h P etr o le u m ), 8 7 Bra n den burg er, A dam ,1 65n 1 ; 1 68n 1 6, 1 7, 2 0; 1 74n 2 2 Brid ge C lin ic , T he ( N ig eria ), 8 2 Brig hto n C olle ctib le s ( fo rm erly L eeg in ), 8 8–92, 1 38 id en tif y in g t h e c u sto m er, 8 8–90 le g al b attle t o p ro te ct p ric in g, 9 0 sy ste m o f v alu e c re atio n, 9 0–91, 92 Bro w ne, J o hn, 8 7 Bru ch , H eik e, 1 35 Buffe tt, W arre n co m petitiv e f o rc es a n d, 3 0–31, 3 6 “eco nom ic m oat,” 7 4 max im , 2 4 myth o f t h e s u per-m an ag er a n d, 3 0 portf o lio , f u rn itu re i n vestm en ts , 3 2 Burlin gto n I n dustr ie s, 2 5 Busin essW eek : o n I K EA , 3 9 C Cham pio n I n te rn atio nal, 2 5 Cham py, J a m es, 8 1–82, 1 70n 2 , Chan el, 6 0 Cir q ue d u S ole il, 3 1 str a te g y o f, 3 1–32 co lle g es, c h an gin g e co nom ic m odels f o r, 1 29 Collin s, W esle y , 1 8 Collis , D av id J ., 1 61, 1 70n 1 co m petitio n. See a ls o s p ecific b usin esse s an aly zin g r iv alr y a m ong f ir m s, h ig h t o l o w , 2 8 Apple a n d, 1 13, 1 17, 1 18, 1 19, 1 20, 1 21, 1 29 Buffe tt’ s e co nom ic m oat a n d, 7 4–75 cre ativ e d estr u ctio n a n d, 1 19, 1 20 fu rn itu re i n dustr y , 1 8, 2 9, 5 3 Gucci a n d, 5 9–60, 60 , 7 1, 7 2, 7 4 IK EA a n d, 4 1, 4 4, 5 3, 1 55–56 In k f o r L ess a n d, 9 4, 1 04, 1 06 in dustr y f o rc es a n d, 2 , 2 7, 2 8 Lan ce! a n d, 9 6, 1 06 le ad ers h ip a n d, 1 34 purp ose a n d, 1 1, 6 5 South w est A ir lin es a n d, 3 1, 4 7 str a te g y s ta te m en t, 9 9, 1 57–58 co m petitiv e a d van ta g e, 4 , 4 7 co m pan y’s p urp ose a n d, 4 , 4 6–47 in ta n gib le s a n d, 7 4–75 Masc o ’s i n f a u cets , 3 4 nonpro fits a n d, 1 51 ro le o f s c arc ity , 7 4 str a te g y a s l o ng-ru n, s u sta in ab le c o m petitiv e a d van ta g e, 1 11, 1 29, 1 30 co m pute r i n dustr y , 1 28. See a ls o A pple ; I B M cre ativ e d estr u ctio n a n d, 1 20 Dell a n d, 1 20 dete rio ra tin g o f, 1 21 dis a p peara n ce o f l o ng-tim e p la y ers i n , 1 20 pric in g a n d, 1 22 tw o s u pplie rs d om in ate , 1 20 Conso lid ate d F oods, 2 5 co re c o m pete n cie s, 1 62 Covey , S te p hen , 1 35 cre ativ e d estr u ctio n, 1 19–20, 1 27 Cre d it S uis se , 6 8, 7 0 Culle n , A nn, 1 54 cu sto m ers Apple a n d, 1 11, 1 18, 1 25 Brig hto n C olle ctib le s a n d, 8 8–90, 92 dif fe re n tia to rs a n d, 5 2, 1 55 fu rn itu re i n dustr y , 1 8–19, 2 9, 3 4, 5 5 Gucci a n d, 5 7, 5 9, 6 0, 60 , 6 1, 6 4, 6 5, 65 , 6 6, 6 7, 67 , 6 8, 7 0, 7 3, 73 , 9 6 id en tif y in g, 8 8–89 id en tif y in g n ew , 7 0, 7 3, 1 04, 1 06 id en tity o f c o m pan y, p urp ose , a n d, 1 1, 4 9, 5 0, 5 1, 5 6, 9 6, 1 37, 1 57–58 IK EA a n d, 4 0, 4 1, 4 3, 4 6, 5 2, 5 3, 5 5 in dustr y f o rc es a n d, 2 7, 2 8, 3 2 In k f o r L ess a n d, 9 3, 9 4, 9 5, 95 , 1 04, 1 06 Masc o f a ilu re a n d, 3 4, 4 6 pow er o f, a n aly zin g, 2 8 pro fit f ro ntie r a n d, 5 9–60, 60 , 6 5, 65 , 67 str a te g y a n d, 5 3, 8 2, 9 3, 9 6, 1 01, 1 05, 1 07, 1 37 str a te g y w heel a n d, 73 , 92 Str a te g y a n d A dded V alu e c h art, 53 te am c o nta ct w ith , 1 41–42 willin gness t o p ay a n d v alu e c re atio n, 5 4, 54 , 5 5, 5 9, 6 0, 6 4, 65 , 67 D Dah lv ig , A nders , 1 56 Deif e ll, T ony, 1 46 Dell, M ic h ael, 1 24 Dell C om pute r, 1 20 de M atto s, W alte r, 9 6–97, 1 06–7 str a te g y s ta te m en t f o r L an ce!, 1 01–2 De P re e, M ax , i x , 1 41, 1 42, 1 61, 1 73n 1 3,1 5,1 6 De S ole , D om en ic o , 5 7, 6 4–77, 8 8, 1 31, 1 39, 1 42–43, 1 46 Deu ts c h m an , A la n , 1 22 dif fe re n tia tio n IK EA a n d, 5 1–52, 5 5 in novatio n t o c re ate , 5 2 purp ose a n d, 4 , 3 9, 5 1–52 str a te g y a n d, 4 7 dif fe re n tia to rs , 1 54–55 Dis n ey in ta n gib le s a n d, 7 5 Pix ar a n d, 1 23 valu e c re atio n a n d, 5 5 Docto rs W ith out B ord ers , 9 8–99 E eco nom ic r e n ts , 1 19 Eco nom is t m ag azin e, 9 8, 9 9 Elio t, T . S ., 1 46 Entr e p re n eu r, O wner, P re sid en t p ro gra m ( E O P), H arv ard B usin ess S ch ool, 7 , 149 artic le b y R obert N ozic k a n d, 1 45 ch an gin g v ie w o f s tr a te g y a n d, 1 , 4 clo sin g s e ssio n, 1 43 co m pan y l e ad er a s s tr a te g is t a n d, 3 –4 co m petitio n f o r b est s tr a te g y, 1 1, 1 2 dra m atic i n sig hts a b out p artic ip an ts ’ b usin esse s, 8 2–83 id en tif y in g p urp ose a n d, 1 1 motiv atio n o f p artic ip an ts , 9 –10 Oliv er’s p oem a n d P ortr a it P ro je ct, 1 46, 1 47 orie n ta tio n, 7 –9, 1 4 overv ie w o f p ro gra m , 9 partic ip an ts , 8 –9 str a te g y c o urs e , 1 0–11 str a te g y v s. e x ecu tio n d is c u ssio n, 7 7–78 as t r a n sfo rm ativ e, 1 4 web site , 1 49 writin g d ow n c le ar s ta te m en t o f p urp ose f o r t h e c o m pan y a n d, 8 1 ex is te n tia lis m , 1 37–38 F fa sh io n i n dustr y , 5 8. See a ls o G ucci Desig ner F ash io n I n dustr y : G ucci 1 975, 60 Desig ner F ash io n I n dustr y : G ucci 1 995, 65 Desig ner F ash io n I n dustr y : R ep ositio nin g G ucci, 67 positio nin g c o m pan y i n , 6 4–66 pro fit f ro ntie r, 5 9–60 “F in din g I n fo rm atio n f o r I n dustr y A naly sis ” ( R iv kin a n d C ulle n ), 1 54 fir m e ffe ct, 4 7 How F ir m s D if fe r: F ir m E ffe cts i n F our D if fe re n t I n dustr ie s, 48 purp ose a n d c re atio n o f, 4 9 fo cu se d f ir m s, 1 54–55 Ford , H en ry , 1 29 Ford , T om , 6 4, 6 6, 6 8, 6 9, 7 1, 7 2, 7 6 Four S easo ns R eso rts , 9 7–98 fu rn itu re i n dustr y , 1 6, 1 7–19. See a ls o M asc o C orp ora tio n Buffe tt’ s i n vestm en ts i n , 3 2 co m pan ie s t h at t r ie d a n d f a ile d i n , 2 5 Furn itu re R eta ilin g: N et P ro fit M arg in 2 003–2010, 48 IK EA a n d, 3 9–46, 5 5 in dustr y f o rc es, a n aly zin g, 2 8–29 in dustr y f o rc es i n , 1 7–18, 2 9, 3 4, 4 0 man ag em en t i n , 1 8 Masc o ’s a cq uis itio ns o f e x is tin g c o m pan ie s, 2 0 Masc o ’s e x pan sio n i n to , 1 5–22, 2 4 Men gel C om pan y c ase a n d, 2 4–25 pric e-p oin ts a n d, 3 3–34 pro ble m s i n , a s o pportu nitie s o r r e d f la g s, 1 9 Rela tiv e I n dustr y P ro fita b ility : 1 990–2010 g ra p h, 26 sc ale e co nom ie s a n d, 3 4 G Gate s, B ill, 1 13–14 Gato ra d e, 7 5 Gen era l E le ctr ic ( G E), 3 0 Gen era l H ouse w are s, 2 5 Geo rg ia P acif ic , 2 5 Ghem aw at, P an kaj, 1 60, 1 68n 1 9 Ghosh al, S um an tr a , 1 35 “g oin g b ack t o t h e c o re ,” 6 9 Google Andro id s o ftw are , 1 29 sta te m en t o f p urp ose , 8 4 Gucci, 5 7–78 Ald o’s c re d o, 5 9 bra n d i d en tity a n d r e p ositio nin g o f, 7 0 ch oic es t h at i n volv ed t r a d e-o ffs , 7 3–74 co m pan y h is to ry , 5 8–61 cu sto m ers a n d, 5 7, 5 9, 6 0, 60 , 6 1, 6 4, 6 5, 65 , 6 6, 6 7, 67 , 6 8, 7 0, 7 3, 73 , 9 6 Desig ner F ash io n I n dustr y : G ucci 1 975, 60 Desig ner F ash io n I n dustr y : G ucci 1 995, 65 Desig ner F ash io n I n dustr y : R ep ositio nin g G ucci, 67 De S ole a n d F ord l e av e, 7 6 De S ole a t h elm , 6 4–76, 7 7, 1 31, 1 39 De S ole ’s s ta te m en t o f s tr a te g y, 7 7 fa m ily t u rm oil a n d o vere x posu re o f b ra n d, 6 1–62 im ple m en tin g r e d efin ed p urp ose , 7 0–72, 1 39 in ta n gib le a sse ts a n d, 7 5 In vestc o rp a n d, 6 2, 6 4, 6 9 man ag em en t c h an ge ( u nder D e S ole ), 7 2, 7 6–77 mark etin g, 7 1 Mau riz io G ucci b uyout a n d l e ad ers h ip , 6 2–64, 6 9, 7 0, 7 4 PPR b uyout, 7 5–76 pric in g, 6 8 pro duct a n d r e p ositio nin g o f, 7 0 as p ublic ly t r a d ed c o m pan y, 6 8 purp ose c la rif ie d , r e in ven te d , 6 4–66, 6 9, 7 3, 1 10, 1 27, 1 42 ra lly in g t e am t o s u pport p urp ose , 6 6, 1 42–43 re co m men ded r e ad in g, 1 63 re sto ra tio n o f b ra n d, 6 2–64 sto re s, 7 0–71 str a te g y a n d, 7 8 str a te g y a s s y ste m o f v alu e c re atio n a n d, 7 2–77, 73 , 8 8 su pplie rs a n d, 6 7–68, 7 1 ta k eo ver a tte m pt, 7 5 tu rn aro und o f, 6 8–69 Gucci, A ld o, 5 9, 6 0–61, 6 2 Gucci, G uccio , 5 8–59 Gucci, M au riz io , 6 2–64, 6 5, 6 9, 7 0, 7 4, 9 6 Gucci, P ao lo , 6 1, 6 2 Gucci, R oberto , 6 1 Gucci, R udolf o , 5 9, 6 0, 6 2 Gucci, V asc o , 5 9, 6 0 Guim ara es, P ed ro , 5 0–51 Gulf + W este rn , 2 5 H health c are s e cto r, 1 29 Herm ès, 6 0, 6 7, 7 1 I IB M , 1 11, 1 13, 1 17, 1 18 mark et i n novatio n a n d, 1 20 sa le o f P C b usin ess, 1 20 IK EA , 6 9, 1 42, 1 67n 1 2 Busin essW eek o n, 3 9 cu sto m ers , 5 3 a d if fe re n ce t h at m atte rs a n d, 4 0 dif fe re n tia tio n a n d, 5 1–52, 5 5 ev olu tio n a n d c h an ge i n s tr a te g y a n d, 1 10 fu rn itu re d esig n a n d, 4 4 Furn itu re R eta ilin g: N et P ro fit M arg in 2 003–2010, 48 , 1 67n 1 3 gro w th o f, 4 3 im ita to rs o f ( S T Ø R), 1 55–56, 1 74n 1 “in citin g i n cid en t” o f b oyco tt, 4 2–43 in dustr y f o rc es a n d, 4 0 in novatio n a n d, 5 2 Kam pra d ’s p hilo so phy, 4 1–42 le an m an ufa ctu rin g, 5 3 mark etin g a n d, 5 2 nam e r e co gnitio n a n d, 5 5 orig in s o f, 4 1 pack ag in g, 4 3, 5 2, 5 3, 5 5 pric in g, 4 3–44, 4 6, 5 3 purp ose : a c o ncep t c o m pan y, 4 5–46, 5 7 purp ose a s c o re o rg an iz in g p rin cip le , 5 3 purp ose a s e n noblin g a n d, 4 9 re co m men ded r e ad in g, 1 62 sto re d esig n, 4 0, 4 4–45, 5 3 str a te g y a n d, 7 8 su pplie rs , 4 2–43, 5 5 valu e c re atio n a t, 5 2, 5 5 Im peria l T obacco , 4 7 “in citin g i n cid en t,” 4 2–43 in dustr y a n aly sis , 1 53–54 re co m men ded r e ad in g, 1 59–60 in dustr y e ffe ct, 2 7, 3 6–37, 4 7, 1 66n 6 in dustr y f o rc es, 2 , 2 6–30, 3 9, 1 44 an aly zin g, 1 53–54 Apple h urt b y, 1 20–21 av aila b ility o f s u bstitu te p ro ducts , 2 8 av era g e p ro fita b ility o f d if fe re n t i n dustr ie s, 2 6–27, 4 7 barrie rs t o e n tr y a n d e x it, 2 8 Cir q ue d u S ole il a n d, 3 1–32 co ntin uum o f, f ro m “ U nattr a ctiv e” t o “ A ttr a ctiv e,” 2 7–29 fa cto rs t o c o nsid er, 2 8–29 fir m e ffe ct, 4 7 fu rn itu re b usin ess, 1 7–20 le sso n o f i n dustr y e ffe ct, 3 6–37 opportu nitie s o r r e d f la g s, 1 9, 3 5 pow er o f c u sto m ers , 2 8 pow er o f s u pplie rs , 2 8 Rela tiv e I n dustr y P ro fita b ility : 1 990–2010 g ra p h, 26 riv alr y a m ong f ir m s, 2 8 South w est A ir lin es a n d, 3 1–32 Sta rb uck s a n d, 3 1–32 In k f o r L ess, 9 3–95, 1 44–45 cu sto m ers , 9 3, 9 4, 9 5, 95 , 1 04, 1 06 Hum an R eso urc es a n d T ra in in g a t I n k f o r L ess, 95 Pro fe ssio nal, 1 04, 1 06 R& D, 9 4 sta te m en t o f p urp ose , 9 3 str a te g y s ta te m en t, 1 02 in novatio n, 8 3 Apple a n d, 1 25 bein g a f ir e s ta rte r a n d, 1 34–36 cre ativ e d estr u ctio n a n d, 1 19–20 dif fe re n tia tio n a n d, 5 2 “eco nom ic r e n ts ” a n d, 1 19 fig htin g t h e s ta tu s q uo a n d, 1 35–36 Four S easo ns H ote l a n d, 9 7 fu rn itu re i n dustr y a n d, 1 8, 2 9 IK EA a n d, 5 2 in dustr y f o rc es a n d, 2 8 Masc o a n d, 1 6–17 Nik e a n d, 8 4 re sis ta n ce t o , 1 35 In te l, 1 18, 1 20 In te rm ark , 2 5 In vestc o rp , 6 2, 6 4, 6 9 J Jo bs, S te v e, 1 10–31 Apple ’s p urp ose a n d, 1 15 arro gan ce o f, 1 21 “d if fic u lt” r e p uta tio n, 1 12–13 Dis n ey a n d, 1 23 ed ucatio n o f, a s s tr a te g is t, 1 22–23, 1 24 fa ilu re a s c o m pan y l e ad er, 1 16 “in sa n ely g re at” t e ch nolo gy a n d, 1 11 Lis a d ev elo pm en t a n d, 1 15 as m ultib illio nair e , 1 23 NeX T a n d, 1 16, 1 19, 1 22–24 Pix ar a n d, 1 23 pro prie ta ry t e ch nolo gy a n d, 1 13 re tu rn t o A pple , 1 19, 1 30–31 re v iv al a n d r e cre atio n o f A pple , 1 24–31 Scu lle y r e m oves f ro m A pple , 1 16 K Kam pra d , I n gvar, 3 9–46, 5 4, 1 38, 1 46 “A F urn itu re D eale r’s T esta m en t,” 4 6 philo so phy o f, 4 1–42 sta te m en t o f p urp ose , 4 5–46 Kay ’s K lo se t, 9 0 Kohl, J e rry , 8 8, 1 38 L Lan ce! S ports G ro up, 9 6–97, 1 06–7 str a te g y s ta te m en t, 1 01–2 le ad ers h ip . See a ls o s tr a te g is t bein g a “ M an o f A ctio n,” 1 36 CEO a s “ g uard ia n o f o rg an iz atio nal p urp ose ,” 1 43, 1 73n 1 7 co m mitm en t a n d p assio n i n , 1 35 co m munic atio n a n d, 1 42, 1 43 co m pan ie s t h at l a ck l e ad ers a s s tr a te g is ts , 1 47–48 co rp ora te r e b ir th o r r e n ew al a n d, 1 40–41 dev elo pin g a s y ste m o f s tr a te g y a n d, 1 41–43, 1 56, 1 57 EO P p ro gra m a n d n ew u nders ta n din g o f, 1 44 ex ecu tin g s tr a te g y a n d, 1 36 fa cin g a n d i n te rp re tin g e co nom ic r e ality a n d, 1 42–43 fig htin g t h e s ta tu s q uo, 1 35–36 fir e s ta rtin g a n d, 1 34–36, 1 42 fle x ab ility , a d ap ta b ility a n d, 1 39 fo ur b asic q uestio ns c o nfro nte d b y, 1 33–34 fre q uen cy o f s tr a te g y r e v ie w , 1 58 gettin g a t e am o n b oard , 1 41–43, 1 56, 1 57 main ta in in g s tr a te g ic m om en tu m a n d, 1 38–41 Mary O liv er p oem a n d, 1 46, 1 47 mean in g o f w hat a l e ad er d oes, 1 46–47 motiv atio n, 1 36 open ness t o n ew i d eas, 1 34, 1 39 prio ritiz in g t im e a n d a ctiv itie s, 1 35 re co m men ded r e ad in g, 1 61 se ttin g a c o urs e f o r a c o m pan y a n d c h oic es, 1 36–38 str a te g is t a s l e ad er, 1 2–14, 1 33–48 str a te g y a s a w ay o f l if e a n d, 1 43–47, 1 74n 1 8 Zen s to ry a n d, 1 34 Louis V uitto n c o m pan y, 6 4, 6 6, 7 1 lo w -c o st p ro ducers , 1 54–55 Ludlo w , 2 5 LV M H ( L ouis V uitto n M oët H en nessy ), 7 5 M Man oogia n , A le x , 1 6–17 Man oogia n , R ic h ard , 1 5–22, 3 5, 3 9, 1 20, 1 42 Marc h ese , E ugen e, 8 3 Marc h ese P artn ers , 8 3 Masc o C orp ora tio n, 1 5–22, 3 1, 3 2, 1 20 ab out t h e c o m pan y, 1 6–17, 1 65n 2 acq uis itio ns o f f u rn itu re c o m pan ie s, 2 0 co m petitiv e a d van ta g e i n f a u cets , 3 4 ex itin g f u rn itu re b usin ess, 2 2 ex pan sio n o f b usin ess i n to f u rn itu re d ecis io n, 1 6 fa ilu re o f e x pan sio n, 2 1–22, 2 4 fa ilu re t o c o nsid er i n dustr y f o rc es, 1 7–20, 2 9, 4 0 myth o f t h e s u per-m an ag er a n d, 2 3–24, 3 3–36 purp ose i n f u rn itu re l a ck in g, 4 6 str a te g ic p la n f o r e x pan sio n a n d, 3 2–35 su ccessfu l b ra n ds, 1 7 “M asc o F ia sc o , T he” ( Fin ancia l W orld ), 3 5 McG ah an , A .M ., 1 66n 4 McK ee, R obert, 4 2 Mead , 2 5 Mello , D aw n, 6 3, 6 4 Men gel C om pan y, 2 4–25, 3 2 Mic ro so ft, 7 4, 1 13, 1 20, 1 26, 1 28, 1 31 Win dow s, 1 18, 1 19 mis sio n s ta te m en t, 1 53 Moltk e, H elm uth v on, 1 38 music i n dustr y , 1 26. See a ls o A pple N Nale b uff, B arry , 1 65n 1 ; 1 68n 1 6, 1 7, 2 0; 1 74n 2 2 Nap ole o n B onap arte , 1 42 Natio nal S em ic o nducto r, 1 18–19 Nik e, 1 10 sta te m en t o f p urp ose , 8 4 nonpro fits , 1 51 Nozic k , R obert, 1 45, 1 46 Nussb au m , M arth a, 1 39 O Oliv er, M ary , 1 46, 1 47 P pharm aceu tic al i n dustr y How F ir m s D if fe r: F ir m E ffe cts i n F our D if fe re n t I n dustr ie s, 48 Pic eu , G eo ff, 8 2–83 Pin au lt, F ra n ço is , 7 6 Pix ar, 1 23 Dis n ey a n d, 1 23 IP O , 1 23 Jo bs a n d, 1 23, 1 24, 1 26 str a te g y s ta te m en t o f, 1 05 Toy S to ry a n d, 1 23 Plu ta rc h , 1 27 Pola ro id , 1 29 Porte r, M ic h ael E ., 2 , 2 7-2 8, 5 0, 5 9–60, 1 59, 1 60, 1 61, 1 65n 1 ; 1 66n 3,4 ,5 ,6 ,7 ; 1 67n 1 2; 1 70n 3 6, 4 2 Pro ductiv ity F ro ntie r, 5 9–60, 1 68n 4 th re e g en eric s tr a te g ie s a n d, 1 54–55 “P ortr a it P ro je ct,” H arv ard B usin ess S ch ool, 1 46 PPR ( P in au lt P rin te m ps R ed oute ), 7 5–76 Pro cte r & G am ble , 8 4 pro fit f ro ntie r, 5 9–60, 60 best i n c la ss a n d, 6 0, 1 68n 1 6 purp ose , 4 9–56 Am REIT , p urp ose a s s te erin g s tr a te g y, 8 5–87, 86 , 87 artic u la tio n o f, b asic q uestio ns t o a n sw er, 9 9 BP’s d efin itio n o f, 8 7 care a n d c o m mitm en t t o a b usin ess a n d, 5 0 CEO a s “ g uard ia n o f o rg an iz atio nal p urp ose ,” 1 43, 1 73n 1 7 ch oic es t h at i n volv e t r a d e-o ffs a n d, 5 0–51, 6 7, 7 3–74, 1 03 cla rity o f, 8 3–84, 1 03 co m petitiv e a d van ta g e a n d, 4 , 4 6–47 as c o re o rg an iz in g p rin cip le , 5 2, 1 21 dif fe re n ce o f b usin ess v s. o th ers , 3 4, 5 6 dif fe re n tia tio n a n d, 4 , 3 9, 5 1–52, 8 5, 1 33 dif fe re n tia tio n t h at m atte rs a n d, 5 3, 5 4, 1 55 “d oes y our c o m pan y m atte r” q uestio n, 7 , 4 0, 5 6, 1 03, 1 21, 1 27, 1 33 effe ctiv e p urp ose s, 4 9–52 ele m en ts o f, 4 6 as e n noblin g, 4 9–50 ev olu tio n a n d c h an ge o f, 1 21–22, 1 34 ex am ple s o f g ood s ta te m en ts , 8 4 ex is te n tia lis m a n d, 1 37–38 fir m e ffe ct a n d, 4 9 “g oin g b ack t o t h e c o re ,” 6 9 Gucci a n d, 6 4–66 id en tif y in g, 1 1 id en tif y in g v alu ab le f ir m r e so urc es a n d, 1 61–62 “id en tity -c o nfe rrin g c o m mitm en ts a n d,” 7 3 IK EA a n d, 4 5–46, 4 9, 5 3, 5 7 im ple m en tin g, 5 7–78, 80 , 8 0–81, 9 6 ( se e a ls o s tr a te g y w heel) im porta n ce o f, 1 38 In k f o r L ess, 9 3 mean in gfu l l if e a n d, 1 45–46 nonpro fits a n d, 1 51 out o f s y nc w ith i n dustr y f o rc es p ro ble m , 1 21 puttin g a s ta k e i n t h e g ro und w ith , 5 0–51 re fin in g a n d c la rif y in g, 8 7–88 re in ven tin g, 4 Sartr e ’s “ p ossib ility o f c h oic e” a n d, 1 37–38 se rv in g a n u nm et n eed a n d, 4 7, 4 9 slo gan t h at c ap tu re s, 8 5, 8 7 sta y in g w ith o rig in al, 4 str a te g y a n d c le ar s ta te m en t o f, 3 3 str a te g y w heel a n d, 73 , 92 , 9 6 su ccess a s r e su lt o f a c o m pellin g p urp ose , 1 56 These u s’s b oat a s m eta p hor f o r c h an gin g, 1 27, 1 30 valu e c re atio n a n d, 5 2–55 vis io n o r m is sio n s ta te m en t v s., 1 53 writin g d ow n, 8 1, 8 7, 9 9 R Rela tiv e I n dustr y P ro fita b ility : 1 990–2010 g ra p h, 26 Rey nold s A m eric an , 4 7 RH R I n te rn atio nal, 1 42 Rilk e, R ain er M aria , 1 74n 1 8 Riv kin , J a n W ., 1 54, 1 60, 1 68n 1 9 Rock w ell I n te rn atio nal, 1 18 Ruksta d , M ic h ael G ., 1 70n 1 Ryan air , 4 7 S Sap orito , T hom as, 1 42, 1 57 Sartr e , J e an -P au l, 1 37, 1 46 sc arc ity , r o le o f, 7 4, 1 33 as “ eco nom ic m oat,” 7 4 Sch um pete r, J o se p h, 1 19, 1 27, 1 29, 1 35, 1 36, 1 38, 1 73n 5 Sco tt P ap er, 2 5 Scu lle y , J o hn, 1 15–16, 1 17 Slo an , A lf re d , 1 29 so ft d rin k i n dustr y How F ir m s D if fe r: F ir m E ffe cts i n F our D if fe re n t I n dustr ie s, 48 Sony, 1 26 South w est A ir lin es, 4 7 str a te g y o f, 3 1 Spin dle r, M ic h ael, 1 17–18 Sta rb uck s, 3 1 str a te g y o f, 3 1 str a te g is t, 3 ad ap tin g t o c h an ge, 1 07, 1 10–11, 1 30, 1 31–32, 1 34, 1 39–40 ( se e a ls o J o bs, Ste v e) ad ap tin g t o c h an ge, r e co m men ded r e ad in g, 1 62 build in g s ta te g ic s k ills , 8 1 co m pan ie s t h at l a ck l e ad ers a s s tr a te g is ts , 1 47–48 co rp ora te r e b ir th o r r e n ew al a n d, 1 40–41 daily d ecis io ns a n d, 1 1 “d oes y our c o m pan y m atte r” q uestio n, 7 eco nom ic f a cto rs t o c o nsid er, 2 8–29 eco nom ic f o rc es, p re d ete rm in atio n o f i n dustr y c o nditio ns a s, 2 9–30, 3 6–37 eco nom ic f o rc es, u nders ta n din g o f, 2 7–30 effe ct o n l o w er t ie rs i n c o m pan y, 1 1 ex erc is e , a p ply in g t o ols o f s tr a te g y t o o ne’s o w n b usin ess, 7 9–107, 1 70n 1 fir m e ffe ct a n d, 4 7 fo ur b asic q uestio ns c o nfro nte d b y, 1 33–34 th e f u tu re a s c o ncern o f, 1 34 “id en tity -c o nfe rrin g c o m mitm en ts a n d,” 7 3 im ple m en tin g s tr a te g ic t h in kin g, 80 , 8 0 as k ey t o c o m pan y, 4 le ad ers h ip a n d r o le o f, 3 –4, 5 , 1 2–14, 1 33–48 ( se e a ls o l e ad ers h ip ) le sso ns f ro m A pple ’s e x perie n ce, 1 19–22 num ber-o ne j o b o f s e ttin g a n a g en da a n d i m ple m en tin g s tr a te g y, 7 7 on-g oin g r o le i n i m ple m en ta tio n o f s tr a te g y, 1 09 overc o nfid en ce a n d m yth o f t h e s u per-m an ag er, 2 3–24, 3 5 pow er o f r e alis m a n d, 3 6–37 purp ose a n d, 5 6, 7 8, 8 0–81 ro le t o m ak e a b usin ess m atte r, 5 6 Ste v e J o bs a s, 1 10–31 te st o f s tr a te g ic t h in kin g, 1 5–22 “w hat d oes i t t a k e f o r t h e c o m pan y t o e n dure ?” a n d, 1 11 str a te g y Brig hto n C olle ctib le s a n d, 8 8–92 ch an ge, n ot s ta sis , a n d, 1 29, 1 31–32 ch oic es, u nan tic ip ate d , 1 09 ch oic es t h at i n volv e t r a d e-o ffs a n d, 5 0–51, 1 31, 1 67n 1 2 cle ar c h oic es a n d, 1 03 cle arly d efin ed , 8 1–82 as a c o m pan y’s c am paig n i n t h e m ark etp la ce, 1 0 co m petitiv e a d van ta g e a n d, 4 7 co nfro ntin g p ro ble m s a n d, 1 03–4 co sts o f u ncle ar s tr a te g ie s, 8 1–82 cu sto m er i d en tif ic atio n a n d, 8 8 defin in g m om en t, 2 4 as d em ocra tic p ro cess, 1 57 dev elo pin g, d ura tio n o f p ro cess, 1 57 dev elo pin g, s te p s i n , 1 56 dif fe re n tia tio n a n d, 4 7 dis c o verin g w here t h e c o m pan y i s n ow a n d, 6 5 “d oes y our c o m pan y m atte r” q uestio n a n d, 1 03 as d uty o f c o m pan y l e ad er, 2 , 3 , 5 , 1 2 ( se e a ls o s tr a te g is t) as d ynam ic , 1 3, 1 31–32 EO P p ro gra m a n d, 4 , 1 0–11 ev olu tio n a n d c h an ge, A pple a n d, 1 10–31 ev olu tio n a n d c h an ge i n , 1 10–11 ex erc is e , a p ply in g t o ols o f s tr a te g y t o o ne’s o w n b usin ess, 7 9–107, 1 70n 1 fo rm ula tio n v s. i m ple m en ta tio n, 3 fre q uen cy o f r e v ie w , 1 58 gen eric g ood p ra ctic es a n d, 7 8 as g ro up e ffo rt, 1 41–43 Gucci, D e S ole , a n d, 5 7–78 Gucci’ s a n d r e d efin ed p urp ose , 7 0–72 hallm ark s o f g re at s tr a te g ie s, 1 03 In k f o r L ess a n d, 9 3–95 in ta n gib le s a s p artic u la rly v alu ab le , 7 5 in te rn al w ork in g s te p s o f, 9 7 as j o b o f s p ecia lis ts , 2 –3, 1 3 as a j o urn ey n ot a d estin atio n, 1 3 man ag em en t a n d, 7 6–77 Masc o C orp ora tio n e x am ple , 1 6–22, 3 2–35 metr ic s ( d ata ) o ver i n tu itio n a n d, 6 6, 8 5–86, 9 5–97, 1 03, 1 42–43 myste ry i n here n t i n , 1 09–10 new p erc ep tio n o f, 1 , 2 Nussb au m ’s “ fra g ile i n te g rity ” a n d, 1 39 old v ie w o f: a s l o ng-ru n, s u sta in ab le c o m petitiv e a d van ta g e, 4 7, 1 11, 1 29, 130 as o rg an ic , 4 , 1 30 orig in s o f w ord , 1 0 passio n a n d, 1 03, 1 35 pic k in g a w in nin g p la y in g f ie ld , 3 1 ( se e a ls o i n dustr y f o rc es) Porte r’s i n novatio ns, 2 Porte r’s t h re e g en eric , 1 54–55 positio nin g a n d, 4 7 purp ose , c la rity n eed ed i n , 4 , 7 8, 1 03 purp ose , r e in ven tin g a n d c h an gin g t h e c o m pan y, 4 , 6 4–66 purp ose , s ta rtin g w ith s ta te m en t o f, 8 3–88 re co m men ded r e ad in g, 1 60–61 ro le o f s c arc ity , 7 4, 1 33 se rv in g a n u nm et n eed a n d, 4 7, 4 9 sta te m en t o f, 9 7–102 sta y t h e c o urs e o r m ove a w ay , 4 , 1 31 Str a te g y a n d A dded V alu e c h art, 53 , 1 68n 1 6 str a te g y w heel: B rig hto n C olle ctib le s, 92 str a te g y w heel: G ucci, 73 SW OT m odel, 2 , 1 52, 152 te am s u pport f o r, 1 41–43, 1 56, 1 57 as t r a d itio nally t a u ght, 1 –2 valu e c re atio n a n d, 4 , 4 9, 7 2–77, 73 , 7 8, 8 8–91, 1 03, 1 30, 1 39, 1 55 as w ay o f l if e , 1 44, 1 74n 1 8 World W ar I g en era ls , 3 3 writin g d ow n, 8 1, 1 09 ( se e a ls o s tr a te g y s ta te m en t; s tr a te g y w heel) str a te g y s ta te m en t, 9 7–102 artic u la tio n o f c o m pan y’s p urp ose a n d, 9 9 Docto rs W ith out B ord ers , 9 8–99 Eco nom is t m ag azin e, 9 8 Four S easo ns R eso rts , 9 7–98, 9 9 Lan ce! S ports G ro up, 1 01–2 mis ta k es i n c re atin g, 1 05 as p ublic d ocu m en t, 1 57–58 qualitie s o f, 1 00–101, 101 str a te g y w heel, 9 2–93 Brig hto n C olle ctib le s, 92 fo rm at, 91 Gucci, 73 im ple m en tin g p urp ose a n d, 7 4 In k f o r L ess, 9 3–94, 1 06 as i n te rn al c o m pan y d ocu m en t o nly , 1 58 Lan ce! S ports G ro up, 9 6, 1 07 purp ose a t c en te r, 73 re ality c h eck f o r, 9 5–97 uniq ue t o s p ecif ic b usin ess, 9 2 “S ty le W ars ” ( Tim e ), 6 9 “S um mer D ay , T he” ( O liv er), 1 47 su per-m an ag er m yth , 2 3–24, 2 9–30, 3 6 Apple a n d, 1 16–19 eco nom ic f o rc es a n d, 2 7, 3 0–31 Masc o C orp ora tio n a n d, 2 3–24, 3 3–38 Men gel C om pan y a n d, 2 4–25 milita ry e q uiv ale n t, 3 3 why i t l iv es o n, 3 1–32 Stu art, H .W ., 1 68n 1 6 su pplie rs Apple a n d, 1 21 av aila b ility o f s u bstitu te p ro ducts , 2 8 co m pute rs , t w o s u pplie rs d om in ate , 1 20 “d oes y our b usin ess m atte r” q uestio n a n d, 5 6 fu rn itu re i n dustr y , 2 9 Gucci a n d, 6 7–68, 7 1, 7 3, 7 5 IK EA a n d, 4 2–43, 5 5 In k f o r L ess a n d, 9 4 Porte r o n, 2 7 pow er o f, a n aly zin g, 2 8 Str a te g y a n d A dded V alu e c h art, 5 3, 53 willin gness t o s u pply a n d v alu e c re atio n, 54 , 5 4, 5 5 Sw an so n, R ic k , 6 9 Sw ed berg , R ic h ard , 1 35, 1 36, 1 73n 3 , , 1 615 SW OT ( S tr e n gth s, W eak nesse s, O pportu nitie s, a n d T hre ats ) m odel, 2 , 152 , 152 T Tay lo r, H . K err, 8 5–87, 1 04, 1 40, 1 43 te am s Am REIT a n d i m ple m en tin g m an ag em en t s tr a te g ie s, 8 6, 1 43 an aly zin g i n dustr y a n d, 1 53 Gucci, r a lly in g t e am t o s u pport p urp ose , 6 6, 1 42–43 on b oard w ith l e ad er’s s tr a te g y, 6 2, 1 41–43 dev elo pin g s tr a te g y a n d, 8 1, 1 56, 1 57 These u s’s b oat s to ry , 1 27, 1 30, 1 39–40 Tille s, S ey m our, 1 36–37 to bacco i n dustr y av era g e p ro fita b ility o f, 2 6 fir m e ffe ct, 4 7 How F ir m s D if fe r: F ir m E ffe cts i n F our D if fe re n t I n dustr ie s, 48 Tognazzin i, B ru ce, 1 15 Tore k ull, B ertil, 4 0 Toyota , 1 10 Tw ain , M ark , 1 00 U Unite d P ain t a n d C hem ic al, 8 2–83 V Vale n tin e, D on, 1 11 valu e c re atio n, 4 , 4 9, 5 2–55 BM W a n d, 5 5 Brig hto n C olle ctib le s a n d, 9 1, 92 De S ole a n d G ucci, 5 8 dev elo pin g a s y ste m o f, 8 8–91 Dis n ey , 5 5 Gucci’ s s tr a te g y a n d, 7 2–77, 73 how t o d o i t, 5 5 IK EA a n d, 5 2, 5 5 In k f o r L ess a n d, 9 3–95 in ta n gib le s a n d, 7 5 as p rio rity f o r a b usin ess, 1 55–56 purp ose a n d l in kag e w ith , 9 6 “th e s e cre t s a u ce,” 9 0 Str a te g y a n d A dded V alu e c h art, 53 , 1 68n 1 6 str a te g y a n d, 4 , 4 9, 7 2–77, 73 , 7 8, 8 8–91, 1 03, 1 30, 1 39, 1 55 str a te g y w heel a n d, 91 , 9 1–93 uniq ue t o s p ecif ic b usin ess, 9 2 Valu e C re atio n: E xpan din g t h e P ie , 54 Wal- M art, 5 4 vis io n s ta te m en t, 1 53 IK EA , 5 1–52 W Wal- M art, 7 4 valu e c re atio n a n d, 5 4 Walto n, S am , 5 4 Welc h , J a ck , 3 0, 3 1, 3 6 Wild e, O sc ar, 1 09 World W ar I , 3 3 Wozn ia k , S te v e, 1 11, 1 12, 1 21–22 Y Yoffie , D av id , v i, 1 68n 1 , 3 ; 1 69n 1 0,1 2,1 8, 1 9, 3 4; 1 70–71n 1 ; 1 71n 2 2 Young, L au ra , 8 8, 1 38 Z Zen s to ry ( o pen ness t o n ew i d eas), 1 34 Ack now le d gm en ts A CLO SIN G L IN E F R O M Huckle b erry F in n o fte n c am e to m in d a s I w ork ed o n t h is m an usc rip t: “ If I’d a k now ed w hat a tr o uble it w as to m ak e a b ook I w ould n’t a ta ck le d it.” L ookin g b ack o n th e p ro cess fro m th is sid e o f th e f in is h lin e, I’m m ore im pre sse d b y th e c o m munal a sp ect o f th e p ro je ct, a n d t h e g ood p eo ple i t h as b ro ught m y w ay . I am gra te fu l fo r fin an cia l su pport fro m th e D iv is io n of R ese arc h at H arv ard B usin ess S ch ool, a n d f o r p erm is sio n f ro m Harv a rd B usin ess R evie w t o u se p arts o f a n a rtic le I h ad p re v io usly p ublis h ed th ere . I a m g ra te fu l, to o, f o r th e opportu nity to w ork w ith L ynda A pple g ate , Ja ck ie B au gher, an d K ath le en M ara i n E xecu tiv e E ducatio n; C ath yje an G usta fs o n i n M org an H all; I m eld a D undas in F acu lty D ev elo pm en t; a n d C hris A lle n a n d o th ers a t th e B ak er L ib ra ry . O ne o f m y m ost re w ard in g c o lla b ora tio ns w as w ith S haro n J o hnso n a n d D av id K ir o n a s w e b atte d a ro und e arly i d eas f o r t h e b ook. My c o lle ag ue D av id Y offie ’s c ase s o n G ucci a n d A pple a re m ain sta y s in m y e x ecu tiv e e d ucatio n c o urs e s a n d ju m pin g o ff p oin ts fo r tw o c h ap te rs in t h is book. M ore gen era lly , th e in te lle ctu al co m munity at H BS an d in p artic u la r in th e S tr a te g y g ro up h as h ad a n e n orm ous in flu en ce o n h ow I s e e t h e w orld a n d w hat I t e ach . Once th e b ook w as u nder w ay , a w hole n ew co m munity em erg ed : Jim L ev in e, w ho s h ow ed m e th e m an y w ay s g ood lite ra ry a g en cie s c re ate v alu e; m y e d ito r a t H arp erC ollin s, H ollis H eim bouch , w hose ju dgm en t I c o unte d o n; C harle s B urk e, w hose ad ep t w ay w ith w ord s bette re d m an y ro ugh p ara g ra p hs; a n d K are n B lu m en th al, K en t L in eb ack , S usa n na M arg olis , a n d L is a B ak er w ho h elp ed w ith v ario us d ra fts o f t h e p ro posa l a n d m an usc rip t. It h as b een a p riv ile g e to w ork w ith th e b usin ess o w ners a n d m an ag ers f ro m a ro und th e w orld w ho in sp ir e d th is b ook a n d m ad e m e s e e h ow m uch th ey as str a te g is ts ad d to th eir b usin esse s. I th an k th em fo r sh arin g th eir sto rie s a n d e n co ura g in g m e t o s h are m in e. On th e h om e fro nt, I th an k m y h usb an d, B ir g er, w ho k ep t th e can dle s burn in g w hen t h e l ig hts w en t o ut. About t h e A uth or C YNTH IA A . M ONTG OM ER Y is th e T im ken Pro fe sso r of B usin ess A dm in is tr a tio n a n d im med ia te fo rm er h ead o f th e S tr a te g y U nit a t H arv ard B usin ess S ch ool, w here s h e’s ta u ght f o r tw en ty y ears . F or th e p ast s ix y ears , s h e has le d th e str a te g y tr a ck in th e sc h ool’ s hig hly re g ard ed ex ecu tiv e p ro gra m fo r ow ner-m an ag ers , atte n d by busin ess le ad ers of m id siz ed c o m pan ie s f ro m a ro und th e g lo be. S he h as r e ceiv ed th e G re en hill A ward f o r h er o uts ta n din g c o ntr ib utio ns to th e H arw ard B usin ess S ch ool’ s c o re M BA s tr a te g y co urs e . M ontg om ery is a to p-s e llin g Harv a rd B usin ess R evie w a u th or, an d her w ork has ap peare d in th e Fin ancia l Tim es, Am eric a n E co nom ic Revie w , Rand Jo urn al of Eco nom ic s, Str a te g ic M anagem en t J o urn al, M anagem en t S cie n ce, a n d o th ers . S he h as s e rv ed o n th e b oard s o f d ir e cto rs of tw o F ortu ne 500 co m pan ie s an d a num ber of m utu al fu nds m an ag ed b y B la ck R ock , I n c. V is it www.A uth orT ra ck er.c o m f o r e x clu siv e i n fo rm atio n o n y our f a v orite H arp erC ollin s a u th ors . Cre d its CO VER I L LU ST R A TIO N © A RCH M AN/S H UTTER ST O CK CO VER D ESIG N B Y R O BIN B IL A RD ELLO Copyrig ht T H E S T R A TEG IS T . C opyrig ht © 2 012 b y C ynth ia A . M ontg om ery .A ll rig hts re se rv ed u nder I n te rn atio nal a n d P an -A m eric an C opyrig ht C onven tio ns. B y p ay m en t o f th e r e q uir e d f e es, y ou h av e b een g ra n te d t h e n onex clu siv e, n ontr a n sfe ra b le r ig ht t o a ccess a n d r e ad t h e t e x t o f t h is e -b ook o n-s c re en . N o p art o f th is te x t m ay b e re p ro duced , tr a n sm itte d , d ow nlo ad ed , d eco m pile d , re v ers e -e n gin eere d , o r sto re d in o r in tr o duced in to a n y in fo rm atio n sto ra g e a n d r e tr ie v al s y ste m , in a n y f o rm o r b y a n y m ean s, w heth er e le ctr o nic o r m ech an ic al, n ow k now n o r h ere in afte r in ven te d , w ith out th e e x pre ss w ritte n p erm is sio n o f H arp erC ollin s e – b ooks. “ T he S um mer D ay ” b y M ary O liv er, p ublis h ed b y B eaco n P re ss B osto n © 1 990 b y M ary O liv er, r e p rin te d b y p erm is sio n o f T he C harlo tte S heed y L ite ra ry A gen cy I n c. T otte rin g-b y-G en tly c arto on, © A nnie T em pest a t T he O ’S hea G alle ry , L ondon. L IC Tex tb ook carto on © Dan ny Shan ah an , The New York er Colle ctio n, w ww.c arto onban k.c o m . “ P uttin g L ead ers h ip B ack in to S tr a te g y,” b y C ynth ia A . M ontg om ery , Harv a rd B usin ess R evie w , J a n uary 2 008, i s u se d b y p erm is sio n o f t h e Harv a rd B usin ess R evie w . F IR ST E D IT IO N L ib ra ry o f C ongre ss C ata lo gin g-in -P ublic atio n D ata h as b een a p plie d f o r. I S B N : 9 78-0 -0 6-2 07101-9 1 2 1 3 1 4 1 5 1 6 o v/q w 1 0 9 8 7 6 5 4 3 2 1 E Pub E ditio n © M AY 2 012 I S B N : 9 780062071002 Abou t t h e P ublis h er Austr a lia Harp erC ollin s P ublis h ers ( A ustr a lia ) P ty . L td . 25 R yde R oad ( P .O . B ox 3 21) Pym ble , N SW 2 073, A ustr a lia http ://w ww.h arp erc o llin s.c o m .a u Can ad a Harp erC ollin s C an ad a 2 B lo or S tr e et E ast – 2 0th F lo or Toro nto , O N, M 4W , 1 A 8, C an ad a http ://w ww.h arp erc o llin s.c a New Z ea la n d Harp erC ollin s P ublis h ers ( N ew Z eala n d) L im ite d P.O . B ox 1 Auck la n d, N ew Z eala n d http ://w ww.h arp erc o llin s.c o .n z Unit e d K in gd om Harp erC ollin s P ublis h ers L td . 77-8 5 F ulh am P ala ce R oad London, W 6 8 JB , U K http ://w ww.h arp erc o llin s.c o .u k Unit e d S ta te s Harp erC ollin s P ublis h ers I n c. 10 E ast 5 3rd S tr e et New Y ork , N Y 1 0022 http ://w ww.h arp erc o llin s.c o m

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