Number 6. Strategy Is Structure
“Engineers want to be successful, and that’s worth more than money,” explains Dean Dahnke, a soft-spoken software engineer in his early fifties. His voice is clear and level as he recounts almost thirty years spent inhabiting the cubicles, clean rooms and beer busts of Silicon Valley, a forty mile long swath of California suburban and industrial landscape riding the curves of Highway 101 as it hugs the San Francisco Bay between SJC (San Jose International Airport) and SFO (San Francisco International Airport.)
“Success is defined differently for different kinds of tech products,” Dahnke continues, seated on a green felt ottoman in his Sunnyvale, CA home, located within a triangle formed by Google’s main campus in Mountain View, Intel’s Santa Clara headquarters building and Apple Computer’s Cupertino headquarters, a short distance from SETI (Search for Extra Terrestrial Intelligence) and the NASA Ames Research Center as well as the headquarters of eBay, Hewlett-Packard and Facebook. “If I am the guy designing circuit boards for a Mac, my success is based on market share. If I am working on iWork® (an Apple Computer software product similar to Microsoft Office®,) my success is based not necessarily on market share, but certainly on acceptance. I want to read in a Macworld article that a feature I worked on was the coolest thing in a new release.”
It’s an accepted management axiom that “structure should support strategy.” This principle was first popularized in a 1962 book called Strategy and Structure: Chapters in the History of the Industrial Enterprise by then Harvard Business School Professor, Alfred D. Chandler, Jr.
As Dahnke’s statements reveal, however, strategy determines not only the power with which a company connects to its market, but also the power with which it connects to and engages employees. In this sense, strategy becomes an integral element of organizational design. In other words, Strategy is Structure.
Strategy is a confusing topic for many. According to Michael R. Hills, President of Hills Consulting Group, Inc., a Novato, CA management consulting firm specializing in strategic marketing, “Part of the problem is the word strategy is used in so many different contexts. You have corporate strategy, business strategy, marketing strategy and operational strategy. Strategy means one thing to an executive and something else to her assistant.”
Hills says, “Strategy is the answer to the question, what are we going to do and why? Tactics, a separate topic, define who is going to do what and how.”
To illustrate the concept of strategy, major computer industry companies have pursued different strategies to achieve their current positions. Seeking to gain market share dominance within an industry segment is a popular strategy because size can confer both cost and marketing advantages. Adobe Systems, maker of popular graphics software like Adobe Acrobat®, Photoshop® and Illustrator®, has augmented in-house software development efforts with purchase of sector leading companies to maintain its market share leadership in graphics software. The Microsoft Corporation enjoyed an early mover advantage in computer operating systems and broadly licensed its DOS and Windows® operating systems for use by other PC makers with their computers. This allowed Microsoft to gain and hold a dominant share in PC operating systems. Apple Inc., in contrast, maintained tight control over its computers and operating system, focusing on user experience to achieve a higher price point in the industry. This strategy did not fully pay off for Apple until the company was able to expand beyond personal computers with its “iLife®” strategy, designing and marketing a range of digital devices, software and music that allow customers to use their products in new, synergistic ways.
Traditionally, the task of formulating competitive strategy involves understanding the economic characteristics of an industry and its environment, assessing the capabilities of a specific company at a specific time, identifying the strategic opportunities and choices available to the company and identifying the major actions necessary to pursue the elusive goal of developing sustainable competitive advantage. When approaching strategy formulation from a Strategy is Structure perspective, the goals and values of employees and other key stakeholder groups must also be taken into account.
“When I first joined Adobe in 1994,” remembers Dahnke, “you would be hard pressed to find an unhappy employee. Things changed at Adobe quite severely in 1995. That was the year Adobe bought Aldus. From a Wall Street perspective, the fact that Adobe doubled in size made it a Fortune 500 company with a whole different level of expectations and less ability for control by the original founders. Wall Street put more pressure on to make sure each division was profitable all the time; that’s when the cycle of layoffs started. Now, every October you can always count on a layoff from Adobe, before the start of their fiscal year on December 1st.”
According to Jeffrey Pfeffer, Ph.D., Professor of Organizational Development at the Stanford University Business School, layoffs have become an increasingly common part of American work life, yet “layoffs don’t work.” Instead of reducing costs and increasing profits as intended, Pfeffer says layoffs often initiate a vicious cycle. “A company cuts people. Customer service, innovation, and productivity fall in the face of a smaller and demoralized workforce. The company loses more ground, does more layoffs, and the cycle continues,” (“Lay Off the Layoffs,” Newsweek, February 2010.)
Layoffs reflect a management view where strategy is viewed as separate from organization. By recognizing that Strategy is Structure, companies are better able to craft a strategy that makes employees feel they “are pulling together to create something great,” as Dahnke describes the turnaround at Apple that began when Steve Jobs returned to the company in 1997.
“Before I joined Adobe, I had been at Apple, where the business was falling part,” Dahnke says. “I worked there most of 1993 as a contractor. At Apple, employees were working hard but everyone was pretty demoralized. They went through so many horrible years when they threw money at failed products.”
“Now Adobe and Apple have flipped. Steve Jobs returned to Apple and reestablished the purpose of the company. The first thing Steve did was clean up projects that were never going anywhere. Steve provided a new operating system and got rid of a bunch of other products they didn’t need. He infused a sense of ‘we’re pulling together to create something great.’ What he added was the Mac OS (operating system) of today. Once they had the new OS, they had the Macintosh® line. From the engineering perspective, when you can see the company losing money all the time, you lose talent and employees are demoralized.”
Energy appears to be fueling the high market capitalization of the world’s richest companies, which during the third quarter of 2011 were, ranked one to three respectively, Apple Inc. ExxonMobil and PetroChina. While two of the three are making money primarily from fossil fuels, Apple has tapped into a more renewable energy source.
“Earlier in my career I worked on a type reader product, a device that scans paper and converts written text to a file that can be edited on a computer, commonly known as OCR,” Dahnke says in closing. “I was working on a booth at Macworld in Boston. Guy comes up with a piece of paper and says please OCR this. I ran it through the application and it did what the application does. It recognized 98 percent of the stuff on that page. That guy was jumping up and down, saying this is the product that will change my life. I didn’t need to take a cab back to the hotel that night because I was flying.”