nightmare of broken promises.”11
It was a case of the overconfident strategist. Along with many other companies that tried to crack the furniture industry, Masco believed a disorganized, competitive, low-profit business offered easy prospects for a disciplined, well-managed company. By some process of optimistic thinking, superficial analysis, and misplaced analogy, serious industry problems began to look like golden opportunities.
The same hopeful thinking reappears every time I teach the Masco case. In their initial analysis of the furniture business, my students—all seasoned executives—duly note how unattractive it is. Yet when the time comes to decide what Masco should do, they prefer to interpret every problem as an opportunity (an “insurmountable opportunity,” as some wag once said). Chaos, cyclicality, fragmentation? Great! No dominant player and low brand recognition? Wonderful! A difficult-to-manage supply chain with large, expensive items, and huge variety? Terrific! Seemingly, there was nothing Masco’s resources and prowess could not overcome or turn to their advantage. It is the myth of the super-manager in full force.
I suspect Masco fell into the same trap. In the face of deeply ingrained, long-lived industry problems, its leaders succumbed to a costly bout of irrational faith in the power of superior management.
THE POWER OF REALISM
Do the lessons of Masco resonate with you?
More than twenty years after the Masco fiasco, my students repeatedly approach me to say, “My industry is just like the furniture business! I’m working really hard and getting nowhere.” For them it’s a eureka moment. The issues they’ve been battling suddenly come into focus, and they understand the larger reasons for their struggles.
They, like Welch, Buffett, and other astute business leaders, grasp the lesson of the industry effect and its profound implications for firm performance. They recognize that, as in the famous serenity prayer, you must accept the things you cannot change, have the courage to change the things you can, and the wisdom to know the difference. It’s a lesson great strategists understand well, but it’s not an easy lesson to accept and master. The myth of the super-manager is hard to let go.
The fundamental lessons here are simple but of paramount importance for the strategist.
First, you must understand the competitive forces in your industry. How you respond to them is your strategy. That means if you don’t understand them, your strategy is based on luck and hope.
Second, even if you understand your industry’s competitive forces, you must find a way to deal with them that is up to the challenge. That may mean skillful positioning, deliberate efforts to counter negative forces or exploit favorable ones, or even a timely exit. But don’t be trapped by the myth into believing that your superior management skills will carry you to success.
Third, whatever you do, don’t underestimate the power of these forces. Their impact on the destiny of your business may well be as great as your own.
The story you will write as a strategist will be set against the backdrop of your industry. It must be true to its realities, while having a difference that’s all its own. It’s to the second of these challenges that we now turn.
4
BEGIN WITH PURPOSE
WE’VE LEARNED SOME painful lessons about the challenges that confront strategists in the face of unattractive industry forces. With this chapter, I begin mapping the path out of the wilderness: specifically, explaining how some astute strategists have managed to distinguish their businesses even in the face of such headwinds.
The journey starts with an individual: Ingvar Kamprad, the founder of IKEA who by all accounts built one of the world’s greatest fortunes. Like Richard Manoogian of Masco, Kamprad was in the furniture business, but his story couldn’t be more different. In 2010, his privately held company, which he started in 1943 at the age of seventeen, had sales of 23.1 billion euro, net profits of 2.5 billion euro, and gross margins of 46 percent.
And the numbers don’t even begin to capture IKEA’s powerful hold on consumers. As BusinessWeek put it, “Perhaps more than any other company in the world, IKEA has become a curator of people’s lifestyles, if not their lives. IKEA World [is] a state of mind that revolves around contemporary design, low prices, wacky promotions, and an enthusiasm that few institutions in or out of business can muster.”1
How did Kamprad succeed where Manoogian failed? He built his company by creating what I like to call a difference that matters. (The full meaning of this phrase will become clear as the story unfolds.) He did so, not by ignoring industry forces, as Manoogian did, but by creating a company that could thrive and add value in the midst of them.
If you’re one of the millions who have shopped at IKEA, you’ll likely have indelible memories of vast, bright, modern stores designed so that entering customers follow a winding path through a huge building filled with furnishings and a great miscellany of housewares. When you chose a piece of furniture—a simple Micke desk for 69 euro, or a ten-person Norden dining table for 269 euro—you noted the information on an order slip, continued on the path to a warehouse-like room, wrestled a flat box containing the item onto your shopping trolley, carted it home on the rooftop of your car, and assembled it yourself. If you brought the kids, you may have parked them in the on-site child care center; you may also have stopped at the restaurant to sample tasty and inexpensive food ranging from salmon to Swedish meatballs and lingonberry tarts. It’s almost a theme park: probably not a customer experience you’d relish if you’ve made your fortune, but when you were starting out, there was nothing that could match it.
RURAL ROOTS
One could say that Ingvar Kamprad was a natural-born entrepreneur. “Trading was in my blood” he told his biographer, Bertil Torekull.2 Kamprad was about five when his aunt helped him buy a hundred boxes of matches from a store in Stockholm that he then sold individually at a profit in his rural hometown of Agunnaryd, deep in the farmland of Smaland. Soon he was selling all sorts of merchandise: Christmas cards, wall hangings, lingonberries (he picked them himself), fish (which he caught), and more. At eleven, he made enough money to buy a bicycle and typewriter. “From that time on,” he recounted, “selling things became something of an obsession.”3
Before going to the School of Commerce in Gothenburg, Kamprad signed the paperwork to start his own trading firm, IKEA Agunnaryd [I for Ingvar, K for Kamprad, E for the family farm Elmtaryd, and A for Agunnaryd]. The mail-order business grew to include everything from fountain pens and picture frames to watches and jewelry. With a keen eye for value, Kamprad ferreted out the lowest-cost sources. Frugality was the norm in Smaland. Its farmers, eking their living from a harsh and spare environment, had to make every penny count.
Noticing that his toughest competitor in the catalog business sold furniture, Kamprad decided to add some to his offerings, supplied by small local furniture makers. Furniture quickly became the biggest part of his business; in the postwar boom, Swedes were buying a lot of it. In 1951, at age twenty-five, he dropped all his other products to focus exclusively on furniture.
Almost immediately he found himself in a crisis. Growing competition from other mail-order firms led to a price war. Across the industry, quality dropped as merchants and manufacturers cut costs. Complaints started to mount. “The mail order trade was risking an increasingly bad reputation,” Kamprad said.4 He didn’t want to join the race to the bottom, but how could he persuade customers that his goods were sound when they had only catalog descriptions to rely on? His answer: create a showroom where customers could see the merchandise firsthand. In 1953 he opened one in an old two-story building. The furniture
