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STRATEGY RULES Five Timeless lessons from Bill Gates, Andy Grove, and Steve Jobs

Michael A. Cusumano

MIT Sloan School of Management

Study ContextThree Very Different People

Never Compared Before

Gates − privileged, geek, drop-outGrove − Holocaust, engineer, Ph.D.Jobs − orphan, flower child, drop-out

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Three Extraordinary Records

Profit growth under Gates, Grove, and Jobs

Profits at Beginning

of CEO Tenure

Operating Profitsat End

of CEO Tenure

Peak Market Capitalization

Gates (25 years)

$11 billion $612 billion (12/27/99)

Grove (11 years)

($135 million) $10 billion $501 billion (08/31/00)

Jobs (14 years)

($403 million) $34 billion $750 billion (03/15)

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Franchises Endured, Post-CEO,With Some Drop Off…

Revenue Growth CumulativeOperating Profit

Recent Market Capitalization

Microsoft after Gates

(15 years)

$23b to $87b $285 billion $400 billion

Intel after Grove (17 years)

$25b to $54b $172 billion $180 billion

Apple after Jobs (3 years)

$108b to $182b $79 billion $750 billion

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Five Strategy Rules Gates, Grove, Jobs – A Common Approach

We believe these should be common to all strategists.

1. Look Forward, Reason BackExtrapolate, interpret, then tie vision to concrete actions

2. Make Big bets, Without Betting the CompanyBold and ambitious to change the game, but not reckless

3. Build Platforms & Ecosystems, Not Just ProductsNo firm is an ‘island,’ especially in technology markets

4. Exploit Leverage & PowerMaster the tactics of both strategic “judo” and “sumo”

5. Shape the Company Around Your Personal AnchorFocus on personal strengths but build a team to compensate for weaknesses 5

How Look Forward?• Create a vision of the future, such as by

– Extrapolation (from what you & others know today)

– Interpretation (what does the data really mean?)

– Point of view (what the future will/should look like for your firm & market, looking out 1-3, maybe 5-10 years?)

• Vision statement = should be simple, clear, actionable

• Then reason back:– What are the specific action items to take TODAY?– 6 months from now? Next 6 months? Etc.

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Implications• Most of us want to learn from history, so we “look back,

and then reason forward.”

• Gates, Grove, and Jobs did some of this! Gates -- IBM’s history with the mainframe Grove -- Fairchild’s history & early Intel Jobs -- Hewlett-Packard & Silicon valley culture

• But mostly, they “looked forward, and reasoned back” –very carefully. We think great strategists need to do this themselves or with a trusted team.

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Moore’s Law Drove the Vision of Gates, Grove & Jobs – But Differently

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Gates’ Vision (1975)"a computer on every desk and in every home,” running Microsoft software. (Company filing, 1975)

Note: Microsoft co-founder Paul Allen wanted to sell hardware & software, which most computer companies did at the time (IBM, DEC, and also Apple, founded in 1976)

Gates: “I thought we should do only software. When you have the microprocessor doubling in power every two years, in a sense you can think of computer power as almost free. So you ask, why be in the business of making something that’s almost free? What is the scarce resource? What is it that limits being able to get value of out that infinite computing power? Software.” (1994 interview, quoted in Microsoft Secrets)

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Jobs’ Vision1976: A computer as easy to use as a typewriter or a toaster, right out of the box! Apple II (1978) then the Macintosh (1984)

2001: “We think [the PC] is evolving… The future of computing lay in finding a way to allow users to create, share, and add value to the explosion of digital devices… The Mac can become the ‘digital hub’ of our emerging digital lifestyle.”

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Grove’s Vision (late 1980s)Moore’s Law would break the vertical computer industry. Intel would try to dominate the microprocessor layer.

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1991 Grove Board Presentation

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Les Vadasz (Intel SVP) on Andy Grove:

“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 …understood a basic truth: 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.”

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On Making Bets

Andy Grove: “There is at least one point in the history of any company when you have to change dramatically to rise to the next level of performance. Miss that moment and you start to decline.”

Steve Jobs: “Dylan and Picasso were always risking failure. This Apple thing is that way for me. I don’t want to fail, of course... If I try my best and fail, well, I’ve tried my best.”

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AppleRevenues($billion)

Operating Profits (%)

Market Value ($billion)

2014 $183 29% ca. $7002013 171 34 5002012 157 35 4132011 108 31 4252010 65 28 3122009 37 21 1802008 32 19 1182007 24 18 742006 19 13 462005 14 12 292004 8 4 82003 6 (loss) 42002 6 -- 52001 5 (loss) 8

What changed at Apple in 2003?

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Apple MicrosoftRevenues($billion)

Operating Profits (%)

Market Value ($billion)

Revenues($billion)

Operating Profits (%)

Market Value ($billion)

2014 $183 29% ca. $700 $87 32% ca. $3502013 171 34 500 78 34 3002012 157 35 413 74 30 2352011 108 31 425 70 39 2472010 65 28 312 62 38 2452009 37 21 180 58 35 2472008 32 19 118 60 37 150 2007 24 18 74 51 36 2882006 19 13 46 44 37 2512005 14 12 29 40 37 2342004 8 4 8 37 25 2562003 6 (loss) 4 32 30 2522002 6 -- 5 28 29 2162001 5 (loss) 8 25 46 258

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Platform Over ProductWhen did “the light” go on ?

• Bill Gates: 1980 DOS contract with IBM

• Andy Grove: 1990 CISC vs. RISC debate

• Steve Jobs: 2003 iPod/iTunes & Windows

– What can we learn from this history?

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• A personal anchor:– A foundation and direction for a company building on the leader’s

personal background and strengths. – Provides a grounding & focus for the individual and the organization,

especially in times of disruption

• But, like a physical anchor, a personal anchor limits what the organization can achieve unless:– Leaders identify their gaps & fill those holes – such as with a “brain

trust,” teamwork, process, culture, etc.

“Personal Anchor” Defined

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Their Personal Anchors

Bill Gates − a deep understanding of software, insight to write once & sell a million times (Software Product-to-Platform Model)

Andy Grove − pursuit of “discipline” as an engineer/managertasked with making Moore’s Law a reality (“Fab & Marketing”)

Steve Jobs − an unmatched sense of product design to bring complex technology to the average person (User Experience)

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Gates: No interest/skill in operations, sales, mktg., etc.– Intense commitment to learning (“think weeks”)– Recruits executives/personnel from outside

Grove: Limited knowledge of the science & management– Develops internal talent to help with the science – Immerses himself in the study of management

Jobs: More artist than technologist or entrepreneur – Almost bankrupted the company multiple times; too controlling– In Round 2 hired “domain experts” & learned better to delegate

Know Thyself, Warts and All

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• Focus on a few key leverage points• Dive into details where you can really add value• Use detail to “teach” the organization

• Provide direction from the top • Encourage “constructive confrontation”• Dedicate time to thinking & learning

Pay Attention to Detail − SelectivelyNever Lose Sight of the Big Picture

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Give Power to People with “The Knowledge”

• Intel and the move from memory chips to microprocessors, and then from product to platform

• Microsoft and the decision to move beyond the PC and “embrace & extend” the Internet with Windows

• Apple and the decision to open up iPod/iTunes to Windows users or add an App Store for iPhone

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SVP Paul Maritz on Microsoft(Why MSFT succeeded from PC to Internet – but not Mobile)

“None of us had a consumer bone in our bodies. It was just not what really at the end of the day motivated us. We were system software guys. . . . We got excited about internal architecture … In spite of protestations to the contrary, we didn’t really care much about the user interface.”

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• You as a leader DO NOT have to be perfect!– Gates, Grove & Jobs had strong personal anchors but numerous flaws;

they learned to become masters of strategy & effective organization leaders (eventually)

• Leverage your anchor but don’t let it “freeze” you!– “Innovator’s dilemma” to “platform leader’s dilemma”– How create flexibility – capabilities, organization, strategy?

• Complements are not substitutes! – When “imperfect leaders” select partners as successors– How prepare the organization for a future without you?

Conclusions

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To Think About• What is occurring now that might transform YOUR

business – what Andy Grove called an “inflection point” (a “10x” change)?

– Current “facts” for extrapolation & interpretation?• How far can you see, with some confidence?

– What other “resources” might become “almost free”?

– What resources might become more scarce – leading to disruptions or new opportunities, with the right bets?

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