The golden rules: Financial Express 27th Dec 2015

As the title suggests, Strategy rules is another book for CEOs on strategy.

Strategy rules
David B Yoffie & Michael A Cusumano
Harper Business
Pp 254
Rs 399

As the title suggests, this is another book for CEOs on strategy. It has become big business today to provide a prescription on how to strategise; and Yoffie and Cusumano use the stories of Bill Gates, Andy Grove and Steve Jobs to build their template in this book. There are five lessons worked on here, which may not all sound new, especially as the reader would have come across them in any book on strategy.

The first part is what is termed as looking forward into the future and then reasoning back for taking action. This sounds clichéd, as all strategies need to start with a vision that is translated subsequently into action by the CEO.

Things like anticipating customer needs and restricting competition can alter the industry dynamics in one’s favour.

The authors argue that strategy involves anticipating competitors’ moves and building barriers to entry by locking in customers. A question that must be posed is what do we think the world will look like tomorrow, and, as a corollary, what will our own company look like in this environment? This will lead to the question of what should be the next killer product or idea that the company must produce.

The important thing is to identify inflection points in the industry and turn threats into opportunities. This was called ‘10X change’ by Grove. Jobs mastered the art of anticipating and shaping customer needs. He drove four 10X changes, starting from graphical user interface in PCs, to iPod and iTunes in digital music, iPhone, App Store revolution and iPad. IBM created a new operating system and Gates took it as an opportunity to control the platform for all PC software. He invested in an operating system, which would replace Windows in the Eighties itself.

The second suggestion is that while successful CEOs have to make big bets, one should not risk the company. This is insightful, as in any business one has to take risk, but at the same time has to cap the quantum so that the company does not go down if the chips are not in one’s favour. The authors argue that we cannot win by betting small and hence have to change industry norms and create new technology, as was the case with these three CEOs.

Gates had developed Windows to take on IBM, which was the powerhouse at that time. Grove in 1985 decided that Intel would change its licensing policies to become the sole source for the next generation microprocessor. Jobs risked the future of Mackintosh franchise when he replaced Mac’s Power PC chip with Intel technology. In all these cases, risk was taken, but the company was not compromised. Gates even postponed his break with IBM until Microsoft’s other lines of business were strong enough to keep it afloat.

The third part of the recipe is slightly offbeat and different. The authors say that besides products, we should build platforms and ecosystems. This makes a lot of sense, because for any industry the entire ecosystem has to grow and only then will everyone benefit, including the leader. We clearly need to influence the world beyond the firm. When IBM came to Microsoft for an operating system, Gates thought of ‘platform first and product next’. Jobs, in his first stint at Apple, thought of the product first, but later shifted to building the platform. Gates always believed in building network externalities.

The fourth bit of advice is to exploit leverage and power by playing ‘judo and sumo’. This is using size and playing strategically, which is sumo, and being alert and perspicuous, which is the judo part. All the three protagonists were master tacticians, often turning the opponent’s strengths to weaknesses and using resources to dominate competition. Three ideas are provided here.

If Gates had not embraced the Internet in 1995, Microsoft would have lost the browser war. If Grove had not invested in engineering and manufacturing in the 1990s to fill the holes in the microprocessor line, Intel would not have maintained its market share. If Jobs had not figured out the importance of looking unthreatening when he approached music executives in 2003 about selling through iTunes, the online store would not have taken off. If Jobs had not made peace with Gates in 1997, Apple might have disappeared. Hence, leaders should know when to stay within the radar, when to work with rivals and embrace competition and when to throw one’s weight around.

While talking of the use of strength and thwarting competition sounds real, an issue not covered is the prevalence of anti-trust laws and rules concerning unfair competition, which are prevalent in almost all countries and hence have to be given careful consideration.

The last episode is shaping the organisation around their personal anchor, which need not be elaborated, as all the three have become icons symbolising their respective companies.

The authors end on the note that the same approach is being used by what they term the new generation ‘rock stars’: Larry Page, Mark Zuckerberg, Jeff Bezos, etc. Surely, this looks like being the way forward.