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

—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.

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