strategies are never frozen—signed, sealed, and delivered. No matter how carefully conceived, or how well implemented, any strategy put into place in a company today will eventually fail if leaders see it as a finished product. There will always be aspects of the plan that need to be clarified. There will always be countless contingencies, good and bad, that could not have been fully anticipated. There will always be opportunities to capitalize on the learning a business has accumulated along the way.
The strategist is the one who must shepherd this ongoing process, who must stand watch, identify and weigh, decide and move, time and time again. The strategist is the one who must decline certain opportunities and pursue others. Consultants’ expertise and considered judgments can help, as can perspectives and information from people throughout an organization. But, in the end, it is the strategist who bears the responsibility for setting a firm’s course and making the choices day after day that continuously refine that course.
That is why strategy and leadership must be reunited at the highest level of an organization. All leaders—not just those who are here tonight—must accept and own strategy as the heart of their responsibilities.
I say little of this tonight in the classroom. But it is on my mind as I return to my seat in the sky deck and reflect on all the would-be strategists I’ve worked with over the years as well as those of you who are just starting out. My hope is that you will come not only to understand the vital role of the strategist, but also to embrace it for yourself.
Five years ago, when I first started teaching in EOP, I heard the program described as challenging and transformative. At the time, “challenging” struck me as right, but “transformative” seemed closer to hype. Having seen it happen again and again, I now share the optimism.
As our orientation session draws to a close, I join the executives and fellow faculty as we head en masse to Kresge Hall for cocktails and dinner. Our work is about to begin in earnest.
In all my classes, I pose one fundamental question: “Are you a strategist?” Sometimes it’s spoken, often it’s only implicit, but it’s always there. We talk about the questions strategists ask, about how strategists think, about what strategists do. My intent is not to coach these executives in strategy in the way they might learn finance or marketing. As business heads, they aren’t going to be functional specialists. But they do need to be strategists.
Are you a strategist?
It’s a question all business leaders must answer because strategy is so bedrock crucial to every company. No matter how hard you and your people work, no matter how wonderful your culture, no matter how good your products, or how noble your motives, if you don’t get strategy right, everything else you do is at risk.
My goal in this book is to help you develop the skills and sensibilities this role demands, and to encourage you to answer the question for yourself. It’s a difficult role and it may be tempting to try to sidestep it. It requires a level of courage and openness to ask the fundamental questions about your company and to live with those questions day after day. But little you do as a leader is likely to matter more.
2
ARE YOU A STRATEGIST?
HERE’S A TEST of your strategic thinking. It’s the same one I give my EOPers right at the beginning of the course.
Step into the shoes of Richard Manoogian, CEO of Masco Corporation, a highly successful company on the verge of a momentous decision.1 You’ve got a big pile of money and must decide whether to invest it in a far-reaching new business venture. The stakes are high, and it’s not an easy or obvious decision. If you don’t go ahead, you could be passing up an opportunity for growth in a new direction and hundreds of millions of dollars in future profits. If you take the plunge and turn out to be wrong, you may have wasted $1–2 billion. Either way, you will have to live with the results for many years.
To make the decision, you’ll first need to know something about Masco and its marketplace. The story begins more than two decades ago, but its lessons are timeless, and the intervening years allow us to take a long view on the company and the industry.
FIRST, CONSIDER THE COMPANY
It’s 1986. Masco is a successful $1.15 billion company that has just recorded its twenty-ninth consecutive year of earnings growth. Its ability to wring outsized profits out of industries that are neither high tech nor glamorous has won it the monicker of “Master of the Mundane” on Wall Street. Its portfolio includes faucets, kitchen and bathroom cabinets, locks and building hardware, and a variety of other household products.2 Masco expects the businesses to generate $2 billion in free cash flow over the next few years.
What would you do with all that money? Masco’s leaders want to tackle other mundane businesses where their prowess can “change the game.” They envision becoming the “Procter & Gamble of consumer durables.” In their immediate sights is the U.S. household furniture business, where they see another opportunity to seize profitable dominance of a sleepy industry.
Is Manoogian’s idea a promising one? If so, is Masco the company to lead the charge?
When I raise these questions the first morning in class, the executives don’t immediately jump up. Like you, they enjoy being the decision maker; it’s the role they play in their real-life jobs, but they’re reluctant to put themselves on the line with a group they’ve just met. With some coaxing, though, we’re soon deep into Masco’s situation and the issues Manoogian faces.
The case for Manoogian’s strategy looks compelling. Through a long record of triumphs in durable goods industries, Masco distinguished itself through efficient manufacturing, good management, and innovation. Its biggest success to date was reinventing the faucet business. Prior to Masco’s entry, the industry was highly fragmented and had a general lack of brand recognition, minimal advertising, and a low level of salesperson training. Leveraging the company’s deep metalworking expertise, garnered in its early years as a supplier to the automotive industry, Masco’s founder, Richard’s father Alex, solved an engineering problem that made one-handle faucets workable. When he couldn’t interest faucet companies in his patented innovation, Masco began making and selling the faucets itself.
Homeowners loved them, finding them a big improvement over traditional faucets that forced users to fiddle with hot and cold water separately. This extra functionality was particularly valued in kitchens where utility and maintenance-free operation were important. Not neglecting two-handle faucets, the company introduced a model with a new type of valve. This design, also patented, eliminated rubber washers, the major cause of faucet failure.
Masco went on to innovate in many other aspects of these new products, from basic manufacturing to distribution and marketing. It was the first to create brand recognition for a faucet with its Delta and Peerless brands. It was the first to introduce see-through packaging, to market faucets direct to the consumer through the do-it-yourself channel, and to advertise faucets on TV during the Olympics. In refashioning an industry of “me-too” products and boldly setting itself apart from others, Masco demonstrated that it was creative, able to apply traditional capabilities in new ways, and willing to take risks and make them pay off—abilities Richard Manoogian hoped would enable him to transform the furniture business.
NOW CONSIDER THE INDUSTRY
At the time Manoogian was weighing this decision, household furniture was a $14 billion business in the United States that didn’t make much money. With high transportation costs, low productivity, and eroding prices, it had about 2 percent annual growth, and return on sales, on average, was about 4 percent. There were more than 2,500 manufacturers,
