lazy thinking. Why do those people
want to work for you, and why are they
more effective working for you than for
somebody else? In what way are you
adding value to the people? You’ve got
to think about your company, not just
your people. You’ve got to look at your
customer and how your company is
meeting that customer’s needs uniquely
well. Because the customer will decide
whether you are successful.
storage is a great opportunity. I can’t tell
you the number of entrepreneurs I’ve
worked with who have tried to get into
storage. And they’ve failed.
If strategy is created by the entrepreneur
rather than by committee, is it more likely
to resemble the leader’s character?
It’s amazing how often that is true.
You look at people like Henry Ford
and Alfred Sloan, and the strategies
for their companies match up with
their backgrounds. A student once told
me he used to know Michael O’Leary,
the CEO of Ryanair. He told me how
O’Leary was socially. Blunt. In-your-face. Then you look at Ryanair’s strategy of having everything bare-bones.
They wanted to charge people to use a
bathroom. It was about reducing costs,
but there was a rudeness to it as well.
What other mistakes do leaders
make when formulating strategy?
A lot of companies get into strategy
creep. They just keep adding technologies, adding services, adding customers
they’d like to serve. The cost of breadth
is often edge—you lose sight of the
thing that makes you different.
will stand for good value, fashion
forward, and good price. And he
changed every single thing in the
business model. He changed the stores
to be edgy. He changed the customers
from conservative, middle-aged women
to younger women. He changed the
supply chain. He put people on pay per
performance—and he had to win over
the unions to do it. And it worked,
because he had absolute clarity about
what Gucci was going to be.
If a strategy is composed of interlocking
parts—customers, suppliers, pricing,
human resources, etc.—can you change
pieces of it without changing everything?
If you realize that this whole idea of
who you are and what you’re bringing
to market doesn’t work anymore, then
you have to change everything. Look at
Gucci. It had drifted way off course, and
when a grandson of the founder tried
to take it back to being the pinnacle of
the fashion world, he failed miserably.
Then they got a new leader, Domenico
De Sole, who said from now on, Gucci
You say strategies often fail
because the leader didn’t understand the industry. In what way?
They look at Starbucks and
think they can make a lot of
money selling high-end coffee.
What they don’t understand
is the whole system behind
Starbucks that enables them
to do what they do, and the
importance of the brand. They
should be looking at different
niches. Or they may see an
industry that no one has ever
got quite right, such as furniture
delivery. And they just kind
of glibly think, Well, there’s
something wrong with this
industry, and I should be able to
fix it. They don’t think about all
the forces that have made it so
difficult. Or they’re attracted to
an industry because the barriers
to entry are low. Everyone says
The alternative is to keep the core
but update it?
There are lots of changes you can make
without changing your core identity.
Ikea is always looking for new technologies and new ways to save. But they still
do things in a very Ikea way. Students
without cars would buy their stuff and
had no way of getting it home, so now
Ikea lets you rent a van. A higher-end
furniture company would never dream
of handling deliveries that way. They also
have services that can assemble your furniture for you. So as competition comes
in and they’re expanding the market,
they embellish their strategy.
But the essence stays the same.
“People say, ‘Which
is more important:
formulation of strategy
or execution?’ That’s a
How much time should leaders
spend on strategy?
Strategy is like an open folder
on your desk. You should always
be thinking about it. You probably have a formal process once
a year where everybody gets
together and talks about the
strategic plan and connects it
to budgeting and sets targets for
people. But that’s not where real
strategy is made. Entrepreneurs
have to think of strategy as
something dynamic and fluid:
What is a good idea in 2012
may be a bad idea in 2014. They
should be constantly reinterpreting the company’s experiences as they happen. So it’s not
just, Does my company make a
difference? It’s, Does my company make a difference today?