Most successful executives learn over time how to think more strategically and how to execute more effectively, at the tactical and organizational levels. (Location 174)
impressive. It was their ability to learn—about strategy, execution, and new domains within their own businesses—that made them such effective leaders over such long periods of time. (Location 179)
But when it comes to the most important ideas and actions that brought them to this moment in their careers, we don’t need to guess; we know. (Location 237)
1. Look Forward, Reason Back 2. Make Big Bets, Without Betting the Company 3. Build Platforms and Ecosystems—Not Just Products 4. Exploit Leverage and Power—Play Judo and Sumo 5. Shape the Organization Around Your Personal Anchor (Location 255)
These impressive numbers demonstrate that a great strategic position, combined with breakthrough products or dominant industry platforms, can generate huge economic benefits for long periods of time. (Location 289)
Like their famous predecessors, they operate in fast-paced “platform” industries defined by exponential growth potential and often unpredictable change. (Location 313)
Most great CEOs learn how to become better strategic thinkers and organization leaders. (Location 321)
learn. Technology-driven businesses usually revolve around industry-wide “platforms” rather than stand-alone products. (Location 328)
depending on how many users they attract as well as how many third-party firms build “complementary” products and services. (Location 330)
These network effects can cause value to increase exponentially as more consumers and complementors adopt the platform. In addition, since platform markets can rapidly “tip” to a single big winner, even the most dominant firms risk constant disruption of the status quo. (Location 332)
a great deal from dissecting and revisiting the rules that, in our view, they all seemed to follow. Through that process, we found that their personal histories and interests played a powerful role in shaping their approaches to strategy and organization building as well as entrepreneurship. (Location 346)
He was a pragmatist, focused on creating products and then industry platforms that were “good enough” to dominate the mass market. (Location 452)
Despite their differences in background and personalities, Gates, Grove, and Jobs shared several key personal attributes. Most important, all three were enormously ambitious and dreamed big dreams—not so much for themselves as for their companies, their industries, and the world. They were determined to have an impact. (Location 455)
Supremely confident in their own abilities, none of the three spared much thought for the feelings of other executives or employees. Gates often shot down an idea he did not like by saying it was “the stupidest f***ing thing I’ve ever heard.” (Location 472)
We do not recommend that other CEOs and leaders emulate their aggressive behavior, but they would do well to adopt the passion that drove the verbal attacks. (Location 475)
Finally, all three CEOs harbored a healthy dose of paranoia, at least as far as their companies were concerned. Grove even titled his 1996 book on strategy Only the Paranoid Survive. (Location 482)
They were always looking over their shoulders for competitors gaining ground or new entrants appearing out of nowhere—just as they once did. (Location 484)
None of the three was infallible. All three made mistakes when it came to both strategy and execution. All three championed products that flopped or came late to market and underperformed. (Location 491)
Nonetheless, we believe Gates, Grove, and Jobs were three of the most successful CEOs and strategists in the high-tech world, and perhaps of all time. (Location 496)
“Those who don’t know history are destined to repeat it.” (Location 537)
“Visionary thought demands learning from the past while staying free of its limitations.”1 (Location 541)
they look forward and reason back. (Location 543)
“look forward” to determine where they want their companies to be at a given point in the future and then “reason back” to identify moves that will take the business there. (Location 544)
This ability should not be confused with clairvoyance. Master strategists do not have a crystal ball: Gates, Grove, and Jobs all made proclamations about the future that turned out to be wrong. But master strategists need to be relentlessly focused on the future, and they must constantly update their forecasts as new information becomes available, and competitors move or otherwise (Location 548)
reveal their intentions. (Location 551)
advance. But in reality, most great strategists are opportunists as well as visionaries. They see early glimmers of an emerging market or identify gaps unfilled by the competition. Then they act, using educated guesses or intuitive leaps without becoming paralyzed by uncertainty or doubt. (Location 554)
The ability to see the future does not by itself make a great strategist. To be a great strategist, you have to figure out how to get from here to there. (Location 561)
together. They were “curators” and synthesizers as much as visionaries. If circumstances changed, they would adjust their visions and their plans. This is the hard work of strategy—not deciding where you want to be, but figuring out how to get there; not just looking forward, but also reasoning back and making adjustments as you go. (Location 565)
1. Look forward to develop a vision of the future; reason back to set boundaries and priorities. 2. Look forward to anticipate customer needs; reason back to match with capabilities. 3. Look forward to anticipate competitors’ moves; reason back to build barriers to entry and lock in customers. 4. Look forward to anticipate industry inflection points; reason back to commit to change—and stay the course. (Location 571)
In order to steer your company safely from the present to the future, and build a viable business, you must determine the steps that will transform today’s vision into tomorrow’s reality. (Location 798)
But the process of reasoning back shouldn’t stop at a company’s borders. In order to succeed, strategists often must ensure that other firms’ capabilities and objectives support their plans for meeting customer needs. (Location 815)
Even the most visionary CEOs will stumble if they fail to recognize not just their companies’ limitations, but those of their suppliers and ecosystem partners. (Location 817)
The problem, Tevanian noted, was the network: “WiFi was just starting, so I couldn’t connect to anything. What good is it to have this device if I can’t connect?”38 Apple held off on releasing the iPad until the infrastructure capabilities were in place to deliver fully on its vision. (Location 828)
In order to avoid this scenario, master strategists must constantly link a tight focus on the near future with their longer-term vision. (Location 833)
Similarly, Les Vadasz, a senior Intel executive and one of Andy Grove’s closest friends, emphasized Grove’s ability to tie the future back to the present (ProShare notwithstanding). Vadasz told us, “There are many managers who make that five-year plan and then around year three they start to think about the next five-year plan. Not Andy.” Grove, he noted, understood a basic truth: (Location 836)
You can only look so far, and so you better just keep looking frequently. That’s the most important element of strategy: You understand the direction you’re going, but you also know what you’re going to do in the next six months. Most companies will do a pretty good job many times about the direction, but then they never break it down to shorter metrics. Intel did a super job on that. When you ask why [we] succeeded, this is one of the reasons.40 (Location 839)
Grove, like Jobs, understood the importance of keeping two key ideas in mind at the same time—the future and the present. (Location 844)
I’m often credited with the motto “Only the paranoid survive.” I have no idea when I first said this, but the fact remains that, when it comes to business, I believe in the value of paranoia. Business success contains the seeds of its own destruction. The more successful you are, the more people want a chunk of your business and then another chunk and then another until there is nothing left. . . . I worry about competitors. I worry about other people figuring out how to do what we do better or cheaper, and displacing us with our customers.42 (Location 860)
In his words, Grove designed these meetings to answer a fundamental question: “What do I have to do today to solve—or better, avoid—tomorrow’s problem?” (Location 866)
He went on to describe where potential competitors were making inroads, where new entrants were offering new approaches, and what it meant for Intel at the time. Intel developed road maps for future products in parallel with this type of competitor analysis. (Location 869)
At the time, Microsoft was one of world’s most successful companies and Gates one of the world’s richest men. Yet like Grove and Jobs, he never felt secure or became complacent. Even when at the top of their game, all three CEOs feared that competitors could destroy them practically overnight, if they were not sufficiently diligent. As (Location 894)
“induce your competitors not to invest in those products, markets and services where you expect to invest the most. That is the fundamental rule of strategy.”49 (Location 904)
In 1993, Grove decided to get a jump on the competition by investing heavily in manufacturing capacity in advance of proven demand. (Location 909)
Intel’s commitment to massive capacity investments caused this entry fee to grow dramatically over time, and, as it did, the number of potential competitors shrank. (Location 914)
In negotiating Microsoft’s original contract to provide DOS to IBM, he fought hard to keep control of the right to license the OS to other companies. (Location 919)
His goal, Gates later explained in 1994, was to control access to DOS, build volume, and keep prices low, thereby making life very difficult for potential competitors: (Location 921)
Using pricing to lock in customers was a tactic to which Gates returned time and time again. When licensing DOS and Windows to computer makers, he gave customers a choice: pay a high price per operating system installed or pay a much lower royalty to Microsoft based on the number of computers shipped—ostensibly because tracking software installations was too hard. (Location 928)
Strategic pricing also helped Microsoft win and keep customers in the desktop productivity market, where it was a late entrant. (Location 934)
Throughout Apple’s history, he was known for filing broad patents, frequently including his own name, and suing anyone he suspected of copying the company’s product designs, including partners (such as Microsoft), suppliers (such as Samsung), and even customers. (Location 949)
Jobs’s focus on providing consumers with a tightly integrated, user-friendly experience tended to lock them in for years. (Location 951)
iTunes, the less likely they were to leave the Apple universe for another platform—a clear example of a simple “network effect,” as we discuss in Chapter 3. Until Apple abandoned this system in 2009, customers were locked in, thereby creating a huge barrier to entry for potential rivals. (Location 962)
One of the toughest problems facing any strategist is identifying and preparing for shifts that could fundamentally alter your industry’s structure—what Grove called a “10X” change. (Location 971)
Whether we call these 10X changes “disruptive innovations,” to use the terminology of Clay Christensen, or “strategic inflection points,” in Andy Grove’s words, the master strategist’s role is to identify and then devise strategies to handle these transformative periods. Recognizing a 10X change after the fact can be the kiss of death; recognizing it in time is a matter of awareness, timing, and preparation. (Location 980)
Grove and Gates shared at least two 10X changes during their CEO tenures. The first was the emergence of the horizontal PC industry. The second was the rise of the Internet as a consumer phenomenon. In 1994, Grove’s technical assistant, Sean Maloney, sat him down at a computer terminal and introduced him to the Internet. (Location 989)
Like Grove, Gates saw the Internet as a source of tremendous opportunity as well as potent threats. In early 1995, he made the Internet the focus of his annual “Think Week”—a hiatus of several days when he took time off from Microsoft to read books and research coming out of universities and bring himself up to date on trends in technology. (Location 1005)
Gates realized that consumers might no longer need an expensive, complex program like Microsoft Windows to run their computers if they could access applications through a Web browser instead of storing and running them on their PCs. But if Microsoft could control the browser and integrate the Internet into Windows and Office, he could neutralize this threat and Microsoft could extend its dominance from the desktop to the Internet. (Location 1016)
Bill Gates’s leadership of Microsoft exemplified this approach. The first versions of Microsoft products tended to have few fans but, once Gates decided something was a strategic priority, he didn’t let poor reviews or low sales change his mind. (Location 1039)
He realized that, as people increasingly used their computers to access data and applications stored on remote servers, those machines were going to become an ever-larger part of the computing landscape. (Location 1044)
Steve Jobs was just as committed to getting it right. In 2008, for example, Apple launched MobileMe, the company’s first attempt to deliver cloud computing. By then, Jobs’s original vision of the PC as a digital hub had evolved, with the “cloud” becoming the hub and the PC just another device. MobileMe was supposed to bring this vision to life by allowing users to store their content—pictures, videos, an address book, or calendar—on a company’s servers and access it from any device. (Location 1060)
Gates, Grove, and Jobs were especially astute at anticipating competitors’ moves and then heading them off. Their collective track record makes it clear that paranoia pays off. If you are not careful, competitors will copy or steal your ideas. If you don’t build barriers to entry and lock in relationships with customers and partners, competitors can take away those early advantages in the blink of an eye. Therefore, master strategists practice constant vigilance to avoid following in the footsteps of onetime greats such as IBM, DEC, or Netscape. (Location 1083)
These examples demonstrate that great strategists need to be willing to make courageous bets, but without putting their companies at risk of collapse. Gates postponed the break with IBM until Microsoft’s other lines of business were strong enough to keep the company afloat. (Location 1109)
Too many firms get derailed by meek strategists who are unable or unwilling to make hard choices. Great leaders, in contrast, are prepared to make bold decisions in order to launch, reinvigorate, or reinvent their businesses. (Location 1114)
Making big bets is one of the toughest jobs in strategy. The natural instinct of many managers and entrepreneurs is to plan, analyze, plan some more, and then move incrementally down the chosen path. Lesser strategists often hedge, delay, defer, and refuse to commit. (Location 1128)
Great strategists must avoid both traps. They must be willing to “go for the big win” and have the courage and conviction to follow through on their plans. (Location 1131)
Similarly, Steve Jobs, although known for his stubbornness, knew it was time to give way to a superior force once developers started to “jailbreak” the iPhone so that it could run software Apple had not approved. (Location 1564)
“You don’t want your phone to be an open platform. You need it to work when you need it to work. Cingular [AT&T] doesn’t want to see their West Coast network go down because some application messed up.” (Location 1569)
Big, bold bets are easy to discuss in theory and even easier to justify in retrospect, but extremely hard to execute in real time. (Location 1582)
This decisiveness was a key factor in all three CEOs’ ability to cannibalize their own businesses, as many big bets require. (Location 1590)
Strategy operates at many levels. It starts with defining your firm’s unique value proposition, market position, and competitive advantage. (Location 1604)
Building a competitive advantage that can last for years often requires influencing the world beyond the boundaries of a single firm. Great strategists, especially in technology markets, don’t just try to build great products or even great companies. Their goal is usually to build industry-wide platforms that bring together a broad ecosystem of partners engaged in complementary product and service innovation, as well as in related marketing, sales, service, and distribution. (Location 1606)
Platforms bring individuals or groups together for a common purpose, usually with access to some shared resource. This definition also applies to the platforms that Bill Gates, Andy Grove, and Steve Jobs championed. Microsoft, Intel, and Apple established industry platforms that bring together users and companies creating complementary products and services. (Location 1614)
To their credit, Gates, Grove, and Jobs all realized, at different times and to different degrees, that cultivating outside partners was better than trying to do all the potential innovation themselves—surely an impossible task. The industry platforms and ecosystems that emerged from this strategy set in motion extraordinarily powerful network effects and global communities of innovators. (Location 1666)
We look for opportunities with network externalities—where there are advantages to the vast majority of consumers to share a common standard. . . . The key to our business is building annuities, by tapping into the broad revenue streams that will rely on our software expertise. (Location 1672)
The story of how Microsoft came to provide DOS to IBM is well known: IBM executives visited Gates in July 1980 looking for an operating system for their new PC. Not having an operating system in the works, Gates demurred and suggested they talk to Gary Kildall, CEO of Digital Research. (Location 1683)
Moreover, he had the foresight to treat the IBM deal not simply as a “product design win,” but as a chance to build an industry platform. In the short term, Gates could have maximized Microsoft’s revenues and profits by selling DOS for a large lump sum or asking IBM to pay a royalty on every copy of DOS it shipped with a PC. (Location 1690)
If he preserved the ability to sell DOS to makers of PC clones, Microsoft would own not just a component of an IBM product, but an essential element of the foundation for an entire new (Location 1694)
Like Microsoft, Intel played a central role in the story of the first IBM PC, which was built around Intel’s 8088 microprocessor. At the time, though, Intel executives did not recognize that they could use the IBM deal to build an industry platform of their own. (Location 1710)
At the time, Moore and Grove were focused on developing pathbreaking products. Since Intel’s founding in 1968, its innovations had ranged from the world’s first memory chips (DRAMs, SRAMs, and EPROMs) to the first microprocessors and microcontrollers. (Location 1715)
It took Grove another ten years after the IBM deal to realize that Intel could become a global powerhouse by making sure its products remained an essential part of the PC platform. (Location 1721)
Since they shared the same architecture, they were also “backward-compatible”: that is, each new chip could still run the software supported by the previous generation, including DOS, Windows, and all the applications written for the two operating systems. (Location 1724)
Most of Grove’s own technical people, his best customers, and many of his partners, wanted Intel to embrace RISC. But Intel’s current road map around the x86 was just picking up momentum, and adopting RISC would require splitting resources behind “two competing horses.” (Location 1731)
“I have three options. I can tell [software developers] that we lean heavily on x86, that the x86 is forever. Or I can tell them that RISC is important and that Intel wants to be the premier company in RISC. Or I can tell them we (Location 1734)
will support both CISC and RISC and let the market sort it out.” (Location 1735)
Equally important, though, Grove had to weigh the value of maintaining compatibility with previous generations of Intel chips. If Intel put its full resources behind RISC, the market would either tip in that direction or split between RISC and CISC. (Location 1740)
By avoiding the trap of chasing the next great technology, Grove cast a decisive vote in favor of a platform rather than a product strategy. (Location 1756)
Andy Grove took a decade longer than Bill Gates to conclude that his company should focus on building industry platforms, not just stand-alone products; (Location 1760)
The best way to win customers, he believed, was to build great products, and the best way to build great products was to maintain complete control over their design and performance. (Location 1762)
By then, Jobs had matured as a strategic thinker. Nothing illustrated this transformation more dramatically than his eventual acquiescence—even if it was “kicking and screaming”—in the decision to pursue a platform strategy for Apple’s hot new product, the iPod. (Location 1786)
Taking Jobs at his word, Apple engineers shipped a Windows-compatible iPod in September 2002, almost a year after the release of the original device. Initial sales were weak, primarily because it used a third-party program, called MusicMatch, that was noticeably inferior to iTunes. (Location 1804)
We are seeing the same type of “product over platform” strategy with Apple’s highly anticipated new product, the iWatch. (Location 1844)
However, just like the original iTunes and iPod, which worked only with a Macintosh computer, Apple designed the iWatch only for an iPhone. (Location 1847)
A true industry platform strategy, by contrast, would make the iWatch compatible with the industry leading platform, Google Android, and go for the majority of smartphone users. (Location 1849)
If we do innovation in the processor, and Microsoft or independent software parties don’t do a corresponding innovation, our innovation will be worthless.” (Location 1858)
The response to this strategic problem was equally straightforward, at least in principle: Gates, Grove, and Jobs all made it part of their mission to facilitate innovation and cooperation throughout their ecosystems. (Location 1870)
Microsoft, like Intel and Apple, depended heavily on complementors. If ecosystem partners did not design new hardware around DOS and Windows, or develop new software applications that ran on Microsoft’s operating system, customers would have little reason to buy new computers or upgrade their operating systems, and demand for Windows would stagnate. Recognizing this relationship, (Location 1935)
Few successful platform companies rely completely on their ecosystem partners for complementary innovations. (Location 1975)
Strategy in a platform business, therefore, may sometimes require you to create some of your own complements to get the market going. However, when platform leaders decide to play on both sides of the market—platform and complements—they run the risk of creating major conflicts with their partners, violating their trust, and making them less likely to invest in a business over which they have little control. If complementors feel that the owner of their target platform is becoming their primary competitor, they may switch to another ecosystem or even attempt to create a new platform of their own. (Location 1977)
Platform markets are industries characterized by a foundation technology and network effects driven by increasing numbers of users and complementary products and services. (Location 2170)
suggests that the best platform, and not the best or the first product, (Location 2172)
Successful industry platforms like DOS/Windows or the Intel x86 microprocessor line create huge recurring revenue streams—what Bill Gates in 1994 referred to as “annuities” resulting from “network externalities.” (Location 2179)
With the right strategy, new platform leaders can emerge that either fragment the existing market or displace the old guard, sometimes in the seeming blink of an eye. (Location 2183)
Although leading companies are likely to hold on to their old platforms for too long, there is also a paradox here: The less successful a platform is in terms of broad industry adoption, the greater the incentives for the platform company to innovate and try something new. As we saw with the iPod, iPhone, and iPad, it is sometimes far more rewarding financially for a company to break with the past and create new platforms for new markets where they have another shot at winning. (Location 2186)
whether to put more emphasis on stand-alone products or on partnerships that could grow the pie for everyone and potentially lead to a more dominant and enduring market position for the platform leader and its partners. (Location 2191)
On other occasions, such as when technological disruptions are on the horizon, or if a firm truly has a breakthrough category-defining design, it may be better to put “product over platform,” (Location 2195)
thoughts. To become a great strategist, you must turn your vision and high-level ideas into tactics, actions, and organizations that reach the customer and fend off the competition. (Location 2204)
But all three CEOs were more subtle tacticians than their public images suggest. (Location 2218)
they often employed tactics that put a premium on smarts, not strength. (Location 2220)
Sometimes leaders of large, successful companies overlook such tactics or write them off as makeshift maneuvers they resorted to on their way up—and have now left behind. (Location 2222)
In other words, all three proved to be masters of what we have previously called tactical judo and sumo. (Location 2225)
Sumo tactics, as the name clearly suggests, rely fundamentally on a company’s power and size. (Location 2227)
Judo competitors use leverage to maximize their impact. (Location 2229)
All three had weaknesses as leaders, and they all benefited greatly from the help and support of their executive teams and other employees. (Location 2730)
The answer may sound surprising: none of the three was the type of well-rounded general manager that top business schools (including our own) try to produce. (Location 2733)
1 Although willing to be proved wrong, each CEO typically saw himself as the smartest person in the room. (Location 2736)
These strengths provided each CEO with a “personal anchor” that grounded his contributions to the company and shaped the way their organizations evolved. (Location 2742)
Such strong identification with a CEO’s strengths—or more generally, with a visionary founder or transformational leader—can have a downside as well. (Location 2746)
Many CEOs try to do too much on their own. Gates, Grove, and Jobs were guilty of this failing early in their careers. (Location 2751)
They paid extraordinary attention to key details of critical products and operations but delegated in other areas with which they were less familiar. (Location 2753)
These lessons, both positive and negative, are particularly valuable for managers in fast-paced, platform-driven industries. (Location 3290)
The first rule demands that CEOs and entrepreneurs look beyond the immediate problems of today. When we teach strategy to senior executives, we frequently ask, “What will you do differently tomorrow?” (Location 3300)
what do you think customers will want in the future? What are your competitors likely to do? And what changes lie in wait, not just for your firm, but for your industry or the economy at large? (Location 3303)
The second rule that Gates, Grove, and Jobs embraced was to make bold bets, but without betting the company. (Location 3312)
they chose to swing for the fences—whether that meant competing directly with an industry leader, overturning industry norms, or creating a brand-new product category. (Location 3314)