#29 Strategy Rules: Five Timeless Lessons from Bill Gates, Andy Grove, and Steve Jobs.
A Book Review.
“What’s more important, strategy or execution?”
“What would you rather have — a great strategy that is poorly executed or a bad strategy that is executed perfectly?”
“The answer of course is neither”
“There is no value in a great strategy that you can’t execute, or great execution that leads you in the wrong direction”
– Strategy Rules.
I finished reading Strategy Rules-Five Timeless Lessons from Bill Gates, Andy Grove, and Steve Jobs by David B. Yoffie and Michael A. Cusumano, professors at Harvard Business School and MIT Sloan School of Management.
They studied these three leaders and their companies for over 30 years and discovered that despite having different personalities, they have a similar approach to Strategy and Execution.
An approach that is succinctly summarized across 5 strategic rules. As we review this book, we shall explore each of these strategic rules, their validity, and how best to apply them in a fast changing digitally driven world.
But before we begin, why are these 3 leaders important?
Gates, Grove, and Jobs were three of the most successful CEOs and strategists in the high-tech world who led their respective companies to exponential growth.
The 5 rules in this book capture their approach to strategy and execution and can help any organization leader to navigate a fast-changing future and thrive.
They are:
1. Look Forward, Reason Back
2. Make Big Bets, Without Betting the Company
3. Build Platforms and Ecosystems — Not Just Products
4. Exploit Leverage and Power — Play Judo and Sumo
5. Shape the Organization Around Your Personal Anchor
Rule #1: Look Forward, Reason Back
It is instinctive that when we need to make a big decision, we refer to what was previously done to solve a similar problem. That is looking back and reason forward.
The authors observed that these 3 leaders instead looked forward and reasoned back.
They looked forward into the future (where they wanted their businesses to be in 1,2,3,5 years) and reasoned back to the actions they needed to take today to get there.
The authors further break this rule into 4 principles:
- Look forward to develop a vision of the future; reason back to set boundaries and priorities
- Look forward to anticipate customer needs; reason back to match capabilities
- Look forward to anticipate competitor’s move; reason back; reason back to build barriers to entry and lock in customers
- Look forward to anticipate industry inflection points; reason back to commit to change — and stay the course
As a company leader you must keep one eye on the future, and the other on the present. This would enable you anticipate customer needs, restrict customer moves, influence industry dynamics, turn strategies into actions, and actions into result.
Rule #2: Make Big Bets, Without Betting the Company
Great strategists need to be willing to make bold bets, without putting their companies at risk of collapse. These three executives exemplified this willingness, and this was what ultimately made Microsoft, Intel, and Apple giants of the high-tech industries.
The authors further break this rule into 4 principles:
1. Bet big to change the game.
2. Don’t bet the company.
3. Cannibalize your own business.
4. Cut your losses.
This book has several examples of big bets that transformed Microsoft, Apple and Intel, from small firms to giants.
Microsoft’s biggest bet was its 1990 decision to develop an independent GUI based operating system, diversify its revenue stream away from IBM, prior to ending its partnership with IBM, who was their 1st customer, and biggest global computer firm.
Apple’s big bet was in 2005 when Steve Job decided to replace Mac’s PowerPC (from IBM) chips with Intel chips. The MacBook laptop turned out to be the bestselling Macintosh in the company’s history.
Intel’s big bet was in 1985 when it decided to go it alone and became the 1st manufacture to produce a ‘single sourced’ (80386) processor, supplying Compaq, as IBM (their key buyer) developed their own processor. This bet gave Intel greater control over its development, and greater profit.
“Even the best strategist make mistakes. The future almost never turns out exactly as you expect. So when making a big bet, you need to keep the potential downside within an acceptable range.”
“Gates, Grove, and Jobs all found ways to avoid the threat of bankruptcy if they failed by carefully timing their bets, diversifying their risks, or spreading their bets out over time.”
– Strategy Rules.
Rule #3: Build Platforms and Ecosystems — Not Just Product
This rule showed how these 3 leaders influenced their industry by going beyond a single product (strategy) to a platform strategy, building an ecosystem with their companies at the center. Although, they all took different approaches to achieve this.
The authors further break this rule into 4 principles:
1. Think platforms, not just product.
2. Think ecosystems, not just platforms
3. Create some of your own complements
4. Evolve and invent new platforms to avoid obsolescence
Apple App Store built a platform around the iPhone where external developers could build and sell apps, with Apple taking a 30 % commission. The apps made the iPhone more useful and valuable, while the iPhone provided a platform for developers to thrive.
“Rather than go to hundreds of company websites to find a software application — which might work with a specific device — consumers could simply visit the App Store, which centralized and simplified the entire process.
Apple took 30% of the revenues, but, in return, it helped grow the pie for everyone by showcasing applications, enabling a simple payment and pricing system, and providing a trusted distribution channel for consumers”
– Strategy Rules
Rule #4: Exploit Leverage and Power — Play Judo and Sumo
“Strategy is easy, but tactics — the day-to-day and month-to-month decisions required to manage a business-are hard.”
- Arthur Rock, Silicon Valley VC
This rule explores the ‘tactical’ link between high-level strategic thinking and delivering real outcomes. ‘Bill Gates, Andy Grove, and Steve Jobs were involved in the day-to-day tactical decisions of their company as well as the longer-term strategy.’ Being tactical requires strategist to be both tough and clever at the same time– Judo and Sumo.
Judo strategy require speed, and agility to outmaneuver the competition. They involve using stealth ‘to neutralized or take advantage of their opponents’ strengths.’
For example, when Steve Jobs was launching iTunes, and Apple had only 2% PC market share. He used this as an advantage in negotiating with the music executive, persuading them to license music on favorable terms to Apple as an experiment.
He said something like:
“What harm could it possible do to license us the mesic on the Mac? Think of it as an experiment.” — Steve Jobs
Sumo strategy, as the name suggest involves being tough — when a company uses its power and size. This could be ‘buying out competitors, cutthroat price competition, and locking up suppliers.’
Gates, Grove and Jobs used a mix of judo and sumo tactics.
The authors further break this rule into 3 judo-inspired principles and one sumo-inspired principle:
1. Stay under the radar
2. Keep your enemies close
3. Embrace and extend competitors’ strengths
4. Don’t be afraid to throw your weight around
“Knowing when to stay under the radar, when to work with your rivals, when to embrace and extend competitors’ strengths, and when to throw your weight around can make the difference between success and failure”
Rule #5: Shape the Organization around Your Personal Anchor
Each of the three CEOs used their ‘personal anchor’- unique strength — to shape and cultivate effective execution at their respective companies.
Gates brought to Microsoft a deep understanding of software. Andy Grove brought to Intel an ‘engineering-like process discipline’ in management and operations. While Steve Jobs brought to Apple excellent understanding of product design.
All three CEOs were not perfect. They leveraged their strengths, but recognized and compensated for their weaknesses, by hiring complementary individuals and fostering supportive cultures and values.
This was what made them effective leaders. They all followed this rule through these 4 principles, in varying degrees:
1. Know thyself — warts and all
2. Pay extraordinary attention to detail — selectively
3. Never lose sight of the big picture
4. Give power to people with ‘the knowledge.’
Nokia Case Study
One of the best examples in this book of strategy gone wrong is Nokia’s ill-fated bet on Windows.
In 1999, Nokia was the most valuable company in Europe with a market capitalization of $250bn. Over the next decade, they would dominate the global cell phone industry.
In 2010, three years after the launch of the iPhone, Nokia still held 37 percent of the smartphone industry, but a decade of bad decisions would bring the company to its knees.
Two things: Nokia failed to turn its Symbian operating system into a viable competitor with Google’s android and Apple’s iOS. The company also exited the United States prior to its emergence as the biggest smartphone market.
By February 2011 with the sales and stock price falling, rather than pivot to the Android operating system or hedge by developing phones for multiple software platforms, Nokia partnered with Microsoft.
In ten months, sales collapsed, and the company’s Windows phone failed to gain traction, and Nokia’s market value dropped by almost 90 percent to $5.2 billion. In September 2013 Nokia’s core handset business was sold to Microsoft for $7 billion.
Getting strategy right is important.
Conclusion
In summary, Strategy Rule by David B. Yoffie and Michael A. Cusumano is an excellent and concise read. It provides a framework to study and contrast three impactful CEOs’ and how they approached Strategy and Execution.
I hope you not only read this book but find opportunities to test and apply these five rules in your daily work, team, and organization.
Good luck!
Thanks for reading and see you next week.
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