Book Review: “Strategy Rules-Five Timeless Lessons from Bill Gates, Andy Grove, and Steve Jobs”

I finished reading Strategy Rules-Five Timeless Lessons from Bill Gates, Andy Grove, and Steve Jobs By David B. Yoffie and Michael A. Cusumano, Gurus on strategy and authors of some of the best selling business books (they also co-authored Competing on Internet Time: Lessons from Netscape and Its Battle with Microsoft).

Despite vast differences in their personalities and leadership styles, these three industry titans and iconic CEOs who shaped today’s world in some way shared an influential approach to strategy. It is that intersection of strategy framework that the authors present in this book through five rules that other leaders and managers can benefit from. I see that this convergence of strategy amongst Steve Jobs, Andy Grove, and Bill Gates is as rare as the picture on the cover page of this book. Though there are numerous books or case studies written analyzing these individuals and their companies, this book is a unique attempt by authors to study Gates, Grove, and Jobs together side-by-side to identify commonalities in their approaches to strategy, execution, and entrepreneurship.

“Becoming a great strategist is not innate. Most successful executives learn over time how to think more strategically and how to execute more effectively, at the tactical and organizational level”

I liked how the authors have distilled the shared approach to strategy into 5 rules while exploring the journey in creating the most valuable companies in the high-tech world.

So, the five timeless lessons or strategy rules that describe the framework are:

1. Look Forward, Reason Back
2. Make Big Bets, Without Betting the Company
3. Build Platforms and Ecosystems — Not Just Products
4. Exploit Leverage and Power — Play Judo and Sumo
5. Shape the Organization Around Your Personal Anchor

In the following sections, I will attempt to summarize in brief what each of these rules means.

Rule #1: Look Forward, Reason Back

It is very natural that when we face a big decision, the instinct is to refer back to history for similar problems and draw lessons to address the situations at hand. That is looking back and reason forward.

However, what the authors observed from these three executives during their career span is looking forward and reasoning back. As a strategist, you need to be looking forward into the future (where you want the business to be in two, three, five years down the road)and then reasoning back to actions that you must take today (what priorities, boundaries you need to do today).

This process of looking forward and reasoning back is broken into four principles:

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 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 inflections points; reason back to commit to change and stay the course

Each of these principles is discussed in detail in the book with examples drawn from each of the three executives strategies and decisions.

“Microsoft has had clear competitors in the past. It’s a good thing we have museums to document that.” — Bill Gates

Rule #2: Make Big Bets, Without Betting the Company

What made Microsoft, Intel, and Apple giants of high-tech industries are the willingness of these three executives to make big courageous bets but without putting their companies at risk of collapse. The book talks about some of the big bets which shaped or transformed these companies from small firms to giants.

Microsoft did in the early 1990s with developing GUI based operating system Windows before breaking out with IBM and before Gates felt that other lines of business were strong enough to keep the company afloat.

Apple did in 2005 with Steve Job’s decision to replace Mac’s PowerPC (from IBM) chip with Intel chip that gave Apple a new lease of life.

Intel with its big bet in 1985 on going alone with 80386 processor as sole producer and turning to Compaq when IBM came up with their own processor (PowerPC).

These decisions are manifested in four principles:

1. Bet bog to change the game
2. Don’t bet the company
3. Cannibalize your own business
4. Cut your losses

“We learned that high market share was critical for success, and that to get market share we had to be willing to invest in manufacturing capacity. Such investments involve big bets because they have to be made in advance of actual demand.” — Andy Grove

Rule #3: Build Platforms and Ecosystems — Not Just Products

The book talks about how these three executives set the foundations for platform strategy and how that differs from product strategy.

Building a competitive advantage that can last of years often requires influencing the world beyond the boundaries of a single firm. When you build an industry-wide platform that creates a broad ecosystem of complementary services or products, it creates exponential growth for the company. This is very much evident in Intel, Microsoft, and Apple’s growth stories.

For example, Gates states very clearly that he knew from day one when Microsoft structured its deal with IBM to allow Microsoft to license DOS to other companies, that there would probably be a clone industry for personal computers, just like there had been for the IBM mainframe. So he saw that the personal computer would be a platform and that Microsoft’s operating system could be a key element of that platform. Similarly with Intel’s x86 microprocessor approach and Apple’s iTunes.

So, the principles that govern the platform and ecosystem strategy are:

1. Think platforms, not just products
2. Think ecosystems, not just platforms
3. Create some of your own complements
4. Evolve and invent new platforms to avoid obsolescence

“Microsoft is the company that has worked with independent software developers more than any other company… Why did we beat other operating systems? Because we worked with independent software companies to get them to write applications.” — Bill Gates

Rule #4: Exploit Leverage and Power — Play Judo and Sumo

This explores the tactical link between thinking strategically and delivering real outcomes. Authors study these three executives on how they avoided the natural temptation to delegate day-to-day tactical decisions or work to subordinates. A great strategist turns the vision and high-level ideas into tactics, actions that reach the customer and tackle the competition. It brings up aspects like being both clever and tough at the same time.

The Judo strategy represents the cleverness — finding ways to take advantages of competitors’ strengths and turn them to your advantage or finding ways to avoid head-on struggles with your competitor when you’re not ready. For example, when Jobs was launching iTunes, Apple only had around 2% of the PC market. So he used that to his advantage in negotiating with music executives; he persuaded them to license music on Apple’s terms as an experiment. In effect, he said: I’m only 2% of the market; what have you got to lose? In that case, being underestimated helped Steve Jobs get his way. That was, in retrospect, a huge mistake by the music industry.

The Sumo strategy represents being tough enough when you’re big and powerful — not being afraid to throw your weight around. For example, Jobs bullied book publishers into accepting Apple’s terms to launch the Apple
iBookstore with the iPad. But playing sumo means walking a fine line.

All three executives employed a mix of judo and sumo techniques. Below are the three judo-inspired principles and one sumo-inspired principle:

1. Stay under the radar
2. Keep your enemies close
3. Embrace and extend competitors’ strengths
4. Don’t be afraid to throw your weight around

“We have to let go of this notion that for Apple to win, Microsoft has to lose… The era of setting this up as a competition between Apple and Microsoft is over, as far as I’m concerned.” — Steve Jobs

Rule #5: Shape the Organization Around Your Personal Anchor

The reason why these three CEOs were effective at the execution was their personal stake in the ground or personal anchor.

For Gates, it was his understanding of software, which was as good as anybody in the world at the time he was launching Microsoft. For Jobs, it was his unique ability to understand the average user, especially the user interface. And Andy Grove had the incredible engineering-like process discipline; it was very clear that what he tried to do was bring the discipline
of engineering to the messy business that semiconductor manufacturing was at that time. All these three executives recognized and compensated for their weaknesses through the people they hired and the cultures, systems, and values they inspired. Each was an imperfect but ultimately effective leader. They all demonstrated the essence of the following four principles:

1. Know thyself — warts and all
2. Pay extraordinary attention to details-selectively
3. Never lose sight of the big picture
4. Give power to people with “the knowledge”

“Execution is God” — Andy Grove

Conclusion

In summary, Strategy Rules By David B. Yoffie and Michael A. Cusumano is a great read. The best part is that you get to understand these three iconic CEOs’ strategy approaches while comparing their decisions side-by-side yet seeing them individually. The way authors identified the patterns and strategic framework studying these three distinct personalities is the uniqueness of this book.

If you are curious to learn about these great strategists of our time, their journey to the greatness, how they played their strengths and compensated for their weaknesses then this book gives a great insight into those aspects. I enjoyed reading it and would definitely recommend this to anyone interested in learning strategy and what makes a great strategist.