The Avatars of the Strategist

The diagnostician is part doctor and part detective. Like the fictional Dr. House in the TV series House, the diagnostician must develop the capacity to embrace unconventional positions. And like Agatha Christie’s fictional detective, Hercule Poirot, the diagnostician must be a keen listener with an ability to piece together puzzles from seemingly irrelevant details.

Challenging the status quo worked for Louis Gerstner, who became CEO of IBM in 1991 after several years of declining revenues and profits. Rather than follow through on the plan of his predecessor, the late John Aker, to split the company into five separate businesses, Gerstner chose to keep the units together, reasoning that each of the businesses could help reposition IBM as a services company. He was proven right. But Ron Johnson’s tenure running J.C. Penney provides a counterexample. Tasked with engineering a turnaround upon taking over in 2011, Johnson saw Penney’s business model as the problem. His prescription of “fair and square” pricing and a store-within-a-store model was a disaster, and revenues fell by 25 percent in a year.

A diagnostician must develop the capacity to recognize opportunities when they appear—and to wait for opportunities if none are evident. When Steve Jobs returned to Apple as CEO in 1997, the company was in disarray. With the widespread adoption of Windows and personal computers, speculation was rife that Apple would either fail or be acquired. Jobs responded by rapidly shrinking the company to a sustainable level. He cut or streamlined product lines and outsourced production. According to the book Good Strategy, Bad Strategy, by University of California at Los Angeles’ Richard Rumelt, when Jobs was asked in 1998 how Apple was going to grow, he replied, “I am going to wait for the next big thing.” Less than a decade later, Apple launched the iPhone, arguably the most revolutionary product in technology history.

The strategist as systems thinker

“Managers do not solve problems,” the late University of Pennsylvania systems theorist Russell Ackoff famously said, “they manage messes.” Messes emerge because it is difficult to decipher the interconnections between and among business units and the external environment. And messes are difficult to manage because it is hard to save what is valuable without causing damage.

The systems thinker’s first task is to understand the nature of the interconnections. Take, for example, rapid and frequent changes in technology. These have implications for an organization’s human-resources policies—who should be hired, how they should be trained and managed, etc. Technological change also forces the organization to evaluate its structure and work practices: Should it have a flatter or steeper hierarchy? Should employees be given substantial autonomy? And so on.

The systems thinker’s second task is to match distinct business processes to activity within the company and to set policy directives on how every unit and activity initiates and responds to change.

The systems thinker aims to see the forest as well as the trees, looking beyond the first-order effects of changes to anticipate the size and magnitude of subsequent opportunities and constraints. He then designs a response system so that if it were to fail, it would do so in noncritical ways before failing in catastrophic ones—the engineering principle of “leak-before-break.”

The systems thinker is acutely aware that feedback loops mean that success begets success and failure begets failure. The 1980 IBM-Microsoft agreement illustrates this principle. That year, IBM asked Bill Gates and his fledgling startup, Microsoft, to develop an operating system for IBM’s new personal computer. The first part of the deal that Gates structured was standard: IBM would have to pay Microsoft a development fee of $200,000 and as much as $500,000 for incremental development work. The second part of the deal is noteworthy for Gates’s recognition of feedback effects. He gave IBM the rights to use the Microsoft operating system and several related products for no additional fees, on the condition that Microsoft had exclusive rights to license the system and related software to other manufacturers.

Why did Gates introduce this second element? In their book, The Business of Platforms, MIT’s Michael A. Cusumano, University of Surrey’s Annabelle Gawer, and Harvard’s David B. Yoffie note that Gates was aware of a growing “clone” industry and calculated that exclusive licensing could be very valuable if the market for personal computers took off. And indeed it did: an entire ecosystem of hardware and software developers emerged during the 1980s and ’90s centered around Microsoft’s operating system, which drove the company’s revenues from $16 million in 1981 to $19 billion by 1999.

The strategist as explorer

Exploration involves search, experimentation, and innovation. Exploration is risky because, as the late Stanford sociologist James G. March noted in a research paper published in Organization Science in 1991, “its returns are uncertain, distant, and often negative.”

The explorer recognizes that exploration is an art form and that developing one’s skills as an explorer requires a lot of exploring. The big payoff from exploration is the discovery of the things that do not work. Legions of entrepreneurs pivot their businesses as they explore possibilities. Twitter started as a podcasting platform and Craigslist as an email list for sharing social events.

The explorer recognizes that not all moments in time are of equal significance. Most moments are ordinary, but some are special because the fate of a project, product, or company hangs in the balance. The explorer cultivates the art of recognizing when they are in such a pivotal moment, and develops the skills to act promptly.

The explorer respects the cliché “Rather be lucky than good,” but also recognizes that being lucky requires her to embrace the possibilities. Indeed, it is because the explorer recognizes that random forces and black swans are more powerful than best-laid plans that he includes unplanned and random search in everyday routines. In 1928, the late Percy Spencer, the Raytheon engineer, created the microwave while trying to create a device to track planes. And Sara Blakely’s attempts at creating modified pantyhose led to the creation of shapewear company Spanx.

When Henry Ford became CEO of Ford Motors in 1906, the automobile industry was in its infancy. It rarely produced more than a few thousand cars, as manufacturers struggled to master product and process. Car bodies were delivered by horse-drawn carriages, while workers rotated from one assembly station to another.

Like an explorer, Henry Ford searched everywhere for expertise and experience to improve the process. He hired experts from other industries such as steel, canning, and brewing, which were also experimenting with mass manufacturing. It took many years for Ford to come up with the first moving-assembly line, complete with a winch and a rope stretched across the floor, but by 1916, the line had improved so significantly that annual volume of the company’s Model T had grown sevenfold in four years and the price of the car had dropped to $300.

The strategist as transformer

The principal aim of the transformer is to alter the assumptions, perceptions, behaviors, and practices of internal and external constituents. This entails recognizing when and why change is necessary and how to initiate it.

The transformer is acutely aware that the battle for ideas must be won before change is initiated. The transformer aims to understand their audience, including the concerns, constraints, and priorities. Elon Musk at Tesla has become a master at winning over external constituents. His headline-grabbing announcements—such as the launch of the Cybertruck or the Roadster 2.0—are designed to win the support of investors and customers by reinforcing the idea that Tesla is the most innovative company in the world. Within a day of unveiling a demo version of the Cybertruck in November 2019, Tesla had received 146,000 preorders for the vehicle.

The transformer recognizes that transformation is as much an internal exercise of reshaping and energizing the organization as it is an external exercise of altering the position of the company.

Satya Nadella’s transformation of Microsoft illustrates the importance of organizational transformation. When Nadella became CEO of Microsoft in 2014, the company was widely viewed as sliding toward irrelevance. The focus of the tech sector had shifted from desktop computers to smartphones. The company was heavily siloed, and infighting inhibited new initiatives. Microsoft’s stock price had not budged in over a decade, and its market capitalization hovered around $200 billion, almost 60 percent below its 2000 peak.

Nadella made several key decisions, exiting the mobile-phone business, embracing open and integrated computing, and doubling down on cloud computing. But importantly, he transformed how the organization operated, insisting that everyone at Microsoft act as part of one company and “not a confederation of fiefdoms,” and changed the culture from one of competition to collaboration. “Anything is possible for a company when it is about listening, learning, and harnessing individual passions and talents to the company’s mission,” Nadella noted in his 2017 book Hit Refresh. “Creating that kind of culture is my chief job as CEO.”

Microsoft’s market capitalization has grown more than fivefold under Nadella, reestablishing the company as one of the most valuable in the world.

Finding your avatar

One does not need the title of strategist to be one. Each of us can benefit from thinking strategically, and everyone has the capacity to achieve a degree of proficiency as a strategist. This consists of responding to two challenges.

The first challenge is to identify the contexts in which your natural avatars will thrive. Your avatars will not be highly sought after and rewarded in every organization, so you must choose well. Context includes people—knowing whom to trust more and whom less—and being open-minded and willing to adapt as you gather evidence. Where and with whom will you best be able to demonstrate your natural abilities and skills?

The second challenge is to develop your temperament and capacities so that you can choose the “right” avatar for a situation. Your psychological mindset is as important as your skill set. King’s College historian Lawrence Freedman in his book Strategy: A History argues that proficiency as a strategist requires a high degree of metis, the “capacity to think ahead, attend to detail, grasp how others think and behave, and possess a general resourcefulness.” How can you shape your natural abilities and your mindset to adapt to the circumstances?

Ram Shivakumar is adjunct professor of economics and strategy at Chicago Booth.