The premise of his class was that knowing the principles of strategy was one thing, but being able to apply them was quite another. His course was about decision making in pursuit of strategic goals. Peter Drucker, the revered management guru, wrote that “executives who make effective decisions know that one does not start with facts. One starts with opinions.” Opinion sets the criteria of relevance for facts. But a single opinion was never enough. “A decision without an alternative is a desperate gambler’s throw, no matter how carefully thought through it might be.” The goal of Rivkin’s class was to learn how to think through the choices and consequences attached to multiple opinions and only then make a decision. He showed us a slide of a a three-dimensional graph. It resembled a mountain range, with jagged peaks and troughs, all of different sizes. Each point on this chart, he said, represented the outcome of a particular set of strategic choices. A trough was bad. A peak was good. But not all peaks were the same height. You could set off up one mountain, making a certain set of decisions, and reach the top only to see a higher peak in the distance. But to get to that higher peak, you had to scramble back down and start again. It was a twist on what we had learned in the first-year strategy course. Strategy was not one thing. It was many things, and in particular how they fit together. When you made a set of strategic choices, you were ascending what you hoped would be the highest peak. But how could you know? You couldn’t, but Rivkin hoped to give us a means of making a more educated guess.
The first step was to dig deep into the issues of cost and willingness to pay. By calculating these, you could begin to see the sources of a company’s competitive advantage. We dissected the cost structures of beer, laminate, and motorcycle manufacturers. Our goal was always to break a business down into its separate parts, all those functions we had studied in the first year—accounting, production, marketing, finance, negotiations, organizational behavior, leadership—and then identify connections between them. How you integrated them was what mattered. The next step was to develop multiple integrated options for the company. If we move production, what does this mean for the culture? We studied a technology firm, Lycos, during its acquisition of a smaller partner in a different location. Did it force all the employees to move to the company’s headquarters? Or did it allow them to stay with their own culture and set of norms? What were the alternatives? As we kept developing these integrated options, we listed the unknowns and set up tests and the forms of proof we would need to make a certain decision. But every time we did this, the first thing Rivkin insisted we do was “follow your gut.” There was plenty of room for instinct in his approach. Once your gut had given you a direction, then you delved into the problem.
We studied companies such as Sears and IBM as they struggled to adapt what had once been very successful, well-integrated business models. We saw how they tried at first to tinker with one aspect of their business—sales, for example, or pricing. But it was only in the face of crisis, the threat of bankruptcy, with their pants on fire, that they undertook dramatic changes to their entire business, unpacking every aspect of it and reassembling it to pursue new strategic goals. It was at these moments that the strategist was paramount.
Rivkin told us that in order to influence company strategies early in our careers, we should learn about all of our employer’s operations, especially those that drove the business or faced change. We should find companies where new ideas were encouraged and developed and stay close to the people who were in charge. Finally, he told us that to be a great strategist required intellectual restlessness paired with a grounded competence. You needed to understand your business from top to bottom, but also be ready to tear it up and start again, to listen to evidence that challenged your biases and ceaselessly revise your judgments. He was telling us that however secure we felt, we should always be alert for tremors.
I heard this same lesson in a very different form from Dan Gilbert, the founder of Quicken Loans. I had not planned to hear him speak, but I was doing my usual Spangler shuffle between the frozen yogurt machine in the basement and an upstairs study room when I thought I could use a voice from beyond the HBS walls. I wandered over to Aldrich and sat in the back of a sparsely filled classroom. Gilbert had started his first mortgage company aged twenty-three, while in the first year of law school. Twenty years later, he and his friends had bought their hometown Cleveland Cavaliers basketball team, which they had transformed from an NBA basement dweller into a glamour team with the drafting of Lebron James. Gilbert was much wealthier than many of the investment banking honchos who came to campus with their entourages and limousines, but he wore a fleece top and khakis and looked like he might have just dropped in from IT support. He was a compelling talker.
“We really became philosophically driven real early,” he said of his company. “It all starts and ends with culture, environment, philosophy. It’s all about who we are versus what we do.” His biggest challenge “was just getting people to pay attention. It’s seventy percent of the battle.” He repeated what I had heard on the venture capital circuit when Bo and I had been floating the podcasting venture. Most ideas are pretty good ones. It all comes down to execution, staying alert, paying attention. “Except for companies that have a certain patent, it’s about thousands and thousands of little things.” This had also been Zeynep’s lesson in TOM and Podolny’s in LEAD. Process matters as much as outcome. In fact, process determines outcome. Toyota worked because every single worker kept his eye on the process and had the right and obligation to improve it and even shut it down if there was a flaw. “There is nothing more important you can do,” Gilbert said, “than to ingrain a culture where everybody is looking and has the power to make changes.” This was the crux of Rivkin’s course: always be alert to a better way of doing everything, never stop innovating. The example Gilbert gave to demonstrate the endless potential for improvement was pumpkin carving. At Halloween, most people hollow out their pumpkin by slicing off the top and scooping out the contents. One year, one of Gilbert’s employees had recommended a different method. Why not slice off the bottom? The contents fall out more easily. It’s easier to light a candle placed on the bottom and then to put the pumpkin over it than to light a candle from the top. You can then carry your pumpkin around using the stalk at the top, which remains attached. Who would have thought that after all these years of conventional pumpkin carving, there was a new and better way to do it?
If there was one thing we should remember coming out of HBS, Gilbert said, it wasn’t the weighted average cost of capital or the four
P
s of marketing. It was to return calls and e-mails in a timely way. That would put us 99.9 percent ahead of our competitors. “People are shocked, people are in awe. They can’t believe it. And we can’t believe that people can’t believe it because we think everybody should do it.” The e-mail auto-reply function, he said, was the equivalent of giving your customers the finger. He emphasized the difference between the victims at a company, those who blamed others and felt sorry for themselves, and those who tried to make things right. Identifying the victims, or “spectacle makers,” was vital, or else they would contaminate everything you did. To illustrate the polluting effect of a whiner, he said, “if I had my favorite bowl of ice cream over here and a bowl of shit over here, if I took one speck of shit and put it in the ice cream, would you eat the ice cream?” Numbers and money follow, he said. They do not lead. After so many months of agony with Excel and watching the ex-bankers let their fingers pirouette across their keyboards, Gilbert’s words were like a drink of cold water. They cut to the heart of what had nagged me about finance: the fact that every model we built seemed rooted in backward-looking assumptions and diminished the essence of every business, the very people who ran it. We were told again and again that finance was really all about the assumptions you made about the future, but when it came down to it, we all spent far more time tinkering with the details of these models than developing the quality of those assumptions. Models felt real. You could feed in one set of numbers and get another. Assumptions? Well, those were debatable. Anyone could assume things. How could you build a proprietary advisory service around assumptions? Where was the high-priced voodoo in that? Financial statements, Gilbert said, were “a little fantasy exercise we all do,” while budgets were pretty much a “bunch of bureaucracy. We’re not in boardrooms looking at pie charts analyzing capital expenditures for 2008 to 2009.” It was crucial to stay in the “bowels of the business.”
He went on to say that you could tell everything about a company from its top line, its revenue. All of its creativity, innovation, and processes were there in that top line. Revenue was proof of your ability to win customers, which would determine your success more than your ability to squeeze a few pennies out of your costs. He recommended we ditch our copies of
Crossing the Chasm
and
The Innovator’s Solution
and read
One Smart Cookie,
the biography of Debbi Fields, the founder of Mrs. Fields cookies. She was a single mother, had three children by the age of twenty-one, and loved cookies. She knew nothing about finance or business. It all came down to people who were excited enough about an idea to make it happen.
The last of my strategy courses was Strategies Beyond the Market, with our RC strategy professor Felix Oberholzer-Gee. Unlike many at the school, Felix seemed to look at the world not as a vast problem in search of solutions, but rather as a glorious mess to be wallowed in, enjoyed, and, perhaps, if you were lucky, dimly understood. His course dealt not with the rational practices of the market, but with the murky dealings that lay beyond: duplicitous lawyers and self-interested politicians, corruption-fighting mayors and investors who made the most of their ethnicity, corporations being held up by nongovernmental organizations and a rabid, misinformed press. It was riveting stuff, a world away from the preachy discussions in LEAD and LCA.
One of Felix’s favorite tricks was to show how some piece of deep economic research could uncover a hidden truth. In order to understand which companies were most dependent on the Suharto regime in Indonesia, for example, rather than relying on street gossip or public reporting, he had examined the stock price movements of the companies listed on the Indonesian stock exchange on the days when Suharto was hospitalized. Fortunately for Felix’s research, Suharto was often being wheeled in and out of the hospital. While the entire index dropped to a certain degree, the same few companies dropped more than the others. These, he concluded, had the deepest links to Suharto.
Felix encouraged a counterintuitive view of business opportunities. We studied a pharmaceutical firm that had almost gone under because it had filed a patent for its most important drug, thereby attracting a spurious law-suit that bogged it down for years. It was too simplistic to regard patents as the best means of protecting one’s intellectual property. The recipe for Coca-Cola, for example, had never been patented, which would have involved a public filing, but was simply kept secret. Stealth and secrecy could be better methods of protection than laws.
We looked at how some companies used regulation to their advantage, by cooperating with lawmakers or appealing to voters, while others railed against it. All too often, companies treated their legal and regulatory departments as problem solvers, when in fact they could be used to serve strategic ends. We also studied the effect of social pressure on companies, how campaign groups out to make a name for themselves often went after the biggest targets they could with the most embarrassing issue they could find. Environmental groups, for example, did not always tackle the worst offenders but rather the ones most likely to be embarrassed and to bring their cause the greatest attention. Companies that yielded and collaborated with these campaign groups often emerged better than those that tried to argue with them on the facts.
For the second half of the course, we were required to write a paper. I had already written three papers during the second year, all on media companies. Now I wanted to find a subject in which the business world I had discovered at HBS clashed with the nonbusiness world I knew from before. In June 2003, my newspaper sent me to cover the protests against the G8 summit in Evian. While my political colleagues had sat in the air-conditioned cool of a local swimming complex, which had been transformed into the press center, I had trudged around a nearby airfield filled with anticapitalists, anarchists, groovers, and dope peddlers. As I picked my way through the tents and VW camper vans, the raggedy-haired jugglers and shirtless falafel chefs, all heady on clouds of hash smoke, I remembered feeling grateful that these people were here. Democracy needed them. What other check was there on the men in suits who carved up the world to suit their needs? So they smelled a little riper. And swore at me and called me names for working for a conservative British newspaper. And laughed at my questions in the sweltering DJ tent. Many of them, I felt sure, had attacked policemen in their time, maybe even smashed up some stores and been denounced by politicians as troublemakers. Still, I thought, good for them. The forces of capitalism needed scaring now and again. Who else would keep them honest? Certainly not the poor consumer/voter, prostrate and voiceless in his credit-induced serfdom. Whenever I expressed these feelings to my friends in London, they would laugh at me. “Oh, right, Philip, you’re a real hero of the barricades. Man of the working classes.” But why couldn’t I be a capitalist skeptic? Why did it always have to be one or the other?
On the Sunday morning of the summit, I marched with the protesters from Geneva toward the French border, where we were to meet another group of marchers coming from France. It was a sunny day and everyone sashayed along to reggae and chants of “Kill George Bush.” Among the twenty-five thousand marchers were Zapatistas from Mexico, Maoists from Italy, French high-school teachers, Palestinian nationalists, and a twenty-four-year-old investment banker from London who said he was there to “fight the extremes of capitalism, the misapplication of capitalism,” especially the mismanagement of poor countries by the International Monetary Fund and the World Bank. A large British contingent organized by the
Socialist Worker
newspaper was furious about the war in Iraq. A hospital worker from Oxford said he was marching for “peace in the world and to stop the privatization of everything.” A Belgian kid in a Jacques Chirac rubber mask said he was there to celebrate the “good dope coming out of Afghanistan” since the American-led invasion. The mood was briefly disturbed when news reached us of the Auto-Gnomes of Zurich, a group of disaffected Swiss anarchists. They had smashed their way into a gas station and stolen dozens of bottles of mineral water. It was a very Swiss heist. The police had vacated their posts at the border, so the marchers were free to climb on top of the control booths and dance. When I returned to the press center and saw the politicians passing through, numbing the three thousand journalists into a collective coma, I knew whose side I was on.