The leaf on the Apple symbol is tinted green at the Apple flagship store on 5th Ave in New York April 22, 2014. Employees and signage have been themed green to mark Earth Day. REUTERS/Brendan McDermid© Brendan McDermid / Reuters/Reuters
The following excerpt is from a new book published by Chartered Professional Accountants of Canada titled Strategy and Planning Toolkit for Small and Medium Businesses. The book, written by Jeffrey D. Sherman, is available at CPACanada.ca/SPTSMB.
The word strategy is often used as a meaningless suffix or as a synonym for plan, as in IT strategy, marketing strategy, or human resources strategy. The word is often intended as a vague exhortation or substitute for terms such as leadership or success.
Even well-respected authors such as Jack Welsh, former CEO of the (formerly) wildly-successful General Electric, writes, "In real life, strategy is actually very straightforward. You pick a general direction and implement like hell."[1] To be fair, he was focussing on the need to act rather than reflect and navel-gaze.
However, our argument here is that coming up with the right strategy does, in fact, require reflection as well as brilliant insight. Welch also writes that the first step of strategy is to "come up with a big aha for your business – a smart, realistic, relatively fast way to gain sustainable competitive advantage."[2] Fortunately, this more-or-less contradicts his earlier (and, regrettably, better-known) aphorism.
A classic story of strategy
Apple Inc. is now a behemoth, with sales of $171-billion (U.S.) and net income of $37-billion (U.S.) in 2013. Just 15 years earlier, the company was close to death. In 1997, sales were $7-billion (U.S.), with a loss of $1-billion (U.S.).
Steve Jobs co-founded Apple in the 1970s and left the company in 1985 following a power struggle. He rejoined the company as interim CEO in 1997 after Apple acquired his new company, NeXT, which provided the technology that became the basis for Apple's Mac OS X operating system. The story of how Jobs turned Apple around is a modern classic as much for what he did not do as for what he did.
In June 1997, Wired magazine ran a now-famous article, titled "101 Ways to Save Apple," with the subtitle "An assessment of what can be done to fix a once-great company." It included suggestions such as "Don't disappear from retail chains" (number 7) and "Sell yourself to IBM or Motorola" (number 21). And, of course, a few truly whimsical suggestions, such as "Get Ben & Jerry's to name a flavour after you" (number 48) and "Create a chemical that cleans the Mac's pale grey plastic" (number 89).
Pundits expected that Jobs would speed up the development of multiple advanced products to attempt to regain Apple's leading-edge position in technology. What he did was elegant and unexpected (even shocking) – he did two big things:
1. He cut back Apple to one product line.
2. He persuaded Microsoft to invest $150-million (U.S.) in Apple.
By cutting back to one line, Apple shrunk to a sustainable core operation from which it would recover and grow. Microsoft's investment in Apple was an extraordinary surprise (and was denounced by many Apple supporters at the time) but nicely benefited both corporations. It was in Microsoft's interest for Apple to survive, because it was undergoing a series of anti-trust investigation in the United States and the investment was also concurrent with ending a long legal battle between the two companies over patent infringement.
Of course, each of these strategic moves consisted of hundreds of sub-activities. The elegant solution of cutting Apple back to one product line developed over time. The previous chair of Apple had encouraged more products to be developed. Apple had at least a dozen versions of the Macintosh and the differences between them were confusing.
Jobs defined the strategy as making four great products, one for each quadrant. As a result, the company regained its focus and created a new consumer-oriented desktop machine: the iMac. (Using a four-cell table is a powerful technique that we will return to later in this chapter.)
Jobs' rescue of Apple is a modern classic tale of strategy. He didn't announce a five-year plan, exhort employees to work harder or even make arbitrary across-the-board cuts (although there were significant job cuts, as entire products were cancelled). Instead, there was a brilliant diagnosis and simple (although not easy) strategic actions. He didn't announce a plan with 101 elements, although executing the strategy certainly involved hundreds, if not thousands, of decisions.
Since then, Apple's strategy has been to wait for strategic opportunities and it has not just recovered and survived, it has prospered by exploiting several "next big things" – each one of which was a brilliant strategic move. The iPhone, iPod Touch, iPad, physical Apple stores, and the on-line iTunes Store and App Store have each created multi-billion-dollar new product groups.
Note that the actions that Jobs took were appropriate and excellent for Apple given the conditions and circumstances that it faced. They would not be the right strategies for other companies facing other conditions. The diagnosis is always the starting point.
[1] Jack Welch, Winning (New York: Harper Business, 2005), p. 165.
[2] Ibid., p. 167.
Jeffrey D. Sherman has over 20 years business experience as chief financial officer and as an author, lecturer and professor focusing on corporate finance.
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