Steve Jobs described the design process as “keeping five thousand things in your brain … and fitting them all together … in new and different ways to get what you want.” A capacity for such mental simulation marks great corporate strategists. They possess an ability to assemble assets and opportunities into valuable strategies. Key to success is a clear theory of value creation to guide such processes.
Jobs’s theory for Apple provides a brilliant example of such corporate strategy in action. His theory of value in personal computing was thoroughly contrarian, in fact prompting most experts to suggest he abandon it. He ignored them all, and today Apple stands as one of the most successful companies in the world. The theory essentially held that:
Consumers will pay a premium for ease of use, reliability, and elegant design in computer and later other digital devices, and that the best means for delivering this was a relatively closed system with significant vertical integration and heavy investment in effective design.
The Macintosh was the first fully formed embodiment of Jobs’s theory. But at its launch, PCs dominated the market, and sticking with the original theory seemed like a bad bet. That didn’t stop Jobs from doubling down when he returned to Apple in 1996. The result was stunningly successful product introductions across a wide-ranging set of categories.
Strategic leaders like Steve Jobs and Walt Disney built valuable corporate theories by relying on key elements every corporate strategist will need to create valuable theories over and over again. Think of it as a nearly blind explorer attempting to navigate a rugged, mountainous landscape.
She’s searching for a higher peak, but can’t see the terrain clearly. Her only option? To develop some theory of what she’ll find, drawing on available knowledge and experience. By conducting strategic experiments, she can gain a better sense of what’s around her.
We see something similar happen in the corporate world. But these strategic experiments take time and money. Given that it takes years to assemble and irreversible investments to assemble these experiments, randomly searching for increased value isn’t acceptable. Like a scientist, a strategist seeks to develop theories with hypotheses to guide a company’s actions.
A strategist will ask, “If the world functions according to my theory, then this action will generate the following outcome.” These theories remain dynamic and adaptable based on evidence or feedback that suggests a change is needed. This approach lowers the cost of the potential experiment and lessens the risk of expensive, misguided investments.
To create sustained value creation, strategists need to keep the three pillars of corporate theory in mind:
- Foresight: Articulate beliefs and expectations regarding how the industry will evolve, including customer tastes or consumer demand and evolutionary technologies; greater foresight heightens the expected value from a strategic experiment
- Insight: Focus on company-specific assets, resources, and activities; what can you do that your competitor can’t
- Cross-sight: Identify elements that enhance the values of other assets, resources, and activities; sustaining value requires assembling value-creating combinations
Of course, not all corporate theories are created equal, but when a theory doesn’t exist at all, then strategic action looks a little more like a random walk. With well-constructed theories, companies can gain a unique vision that helps them identify promising strategic experiments that are likely to generate value and help them pull away from the competition.
This excerpt comes from Beyond Competitive Advantage. Published June 14, 2016, by Harvard Business Review, enter your email below to download the first chapter.