BOOK REVIEW: “Staying Power: Six Enduring Principles for Managing Strategy and Innovation in an Uncertain World” by Michael A. Cusumano

coverStaying Power is a dense and extremely well researched book. It is not for the faint hearted. Cusumano reportedly spent over 25 years researching some of the world’s largest and most successful companies and was an advisor to more than 100 firms.  The book looks in depth as the strategies adopted by companies such as Google, Intel, Apple, JVC, Toyota, and Microsoft.

Key words

Management, research, strategy, corporate strategy, entrepreneurship, innovation, market leadership, competitive success, enduring success, productivity.

Summary

As the title suggests, Cusumano offers 6 principles to maintain the competitive advantage of a company. Each chapter highlights the strategy of one or two companies.

Michael A. Cusumano

Michael A. Cusumano

Mr. Cusumano is of the “distinctive organizational capabilities” school.  He advocates the building of platforms rather than just products and services. In this Mr. Cusumano goes against the grain somewhat by actually criticizing the strategy that Steve Jobs had adopted at Apple (the book was published in 2010 before Mr. Jobs’ death). Apple’s failure was not to work with others whereas Microsoft had been far more open and therefore had designed a platform that was much more easily adopted by the consumer.

The book also suggests that companies must pull information from the market and adapt to real-time changes in demand and competitive conditions rather than just pushing their products onto the market.

Cusumano gives the example of JVC (the winners in the video recorder battle) who “humbly visited competitors and potential partners, ask feature suggestions and did their best to accommodate them.”

This sounds logical, though it is the organization that is the crucial element to achieving this. Therefore the company must try to gain economies of scope rather than merely scale, by creating efficiencies across all a firm’s activities; and acquire flexibility, in addition to efficiency, to quickly adapt to a volatile marketplace.

The essence of his argument can be seen in the following  diagram:

Diagram

This is not a book you should begin with if you are just starting a course in management. However, if you have a few years experience in industry or are coming to the end of an MBA it will give you a very detailed description of the workings of some of the top companies in the world.

 

Interesting quotes from the book:

A successful platform strategy benefits from particular skills in product architecture and interface design. It also requires negotiations with other firms to build products and services that complement the platform.

A successful platform strategy benefits from particular skills in product architecture and interface design. It also requires negotiations with other firms to build products and services that complement the platform and make it more useful.

Betamax went from a 100 percent share in 1975, the beginning of the market, to zero by the later 1980’s.

Few people probably know that, in 1995, Apple was nearly twice the size of Microsoft in annual revenues (about $11 billion to $6 billion). However, Apple’s market valuation was only about 40 percent of revenues, whereas Microsoft’s value was nearly six times revenues.

It is sobering to realize that General Motors in 2008 had revenues of about $150 billion – two and a half times that of Microsoft – along with billions of dollars in losses and then a US taxpayer bailout. Revenues are only part of the story for a firm; the real bottom line for investors is market value, which is driven by elements other than sheer scale.

Customers will spend more for a product when it is new and path-breaking. The difficulty arises when the novelty wears off and cheaper copy-cat products appear that are ‘good enough’.

The cost of reproducing a software product is essentially zero. Since 2000, Microsoft has typically had gross margins of 65-80 percent and operating margins (profit before taxes and investment income) of around 35 percent.

Intel research

The challenge is to be not so open that the competitors could imitate your unique product.

The challenge is to be open, but not so open that the platform leader makes it too easy for competitors to imitate the essential characteristics that make the original product so appealing. For a product or component technology to have platform potential, it should satisfy two conditions.

Intel has provided an excellent model for the process of platform leadership. Job 1 should always be to sell your basic products (in this case, microprocessors) and protect the core platform technology from imitation. But Job 2 has been to encourage complements.

Palm is another case of failure to tip, at least in part because management could not decide early enough whether to be a product company or a platform company.

Facebook learned quickly from Microsoft and, since 2007, has been functioning very much like a software development company – hosting programmer conferences and sharing its mark-up technology (a special version of HTML) as well as its application programming interfaces (APIs) so that outsiders can develop and post applications.

Some managers may believe that platform dynamics apply only to high-tech companies. But examples such as Mattel’s Barbie doll, Wal-Mart, Marks & Spencer, Best Buy, and CVS and Walgreens demonstrate this is not true.

For more than a decade, we have been witnessing a transformation: the gradual ‘servitization of products’ as well as the ‘productization of services’, often enabled by digital technology.

Most firms are better off evolving strategy and capabilities together, and incrementally. Not only is strategy worth little without the appropriate implementation skills. But finding the right strategy is also usually a process of trial and error, and risk-taking.

productivity comparison

In terms of productivity, the U.S. producers were no match for Japanese Toyota.

The entire Japanese automobile industry in 1950 produced only about 30,000 vehicles – 1.5 days’ production in the United States!

Toyota was 1,5 times more productive than GM, Ford, and Chrysler in 1965 and 2,7 times more productive in 1979.

Toyota workers, however, using the pull system and other techniques, made more than twice as many vehicles per person each year as US autoworkers (approximately 13 to 6 in 1983 on an adjusted basis). The average Japanese assembly plant around 1990 took less than 17 hours to assemble a finished vehicle in Japan and about 21 hours in North America. The average American-owned factory took 25 hours and the average European plant nearly 36 hours. Moreover, there was no tradeoff between productivity and quality. The average Japanese plant produced cars with only 52 defects per 100 vehicles in Japan and 55 in the Japanese North American plants. By contrast, American cars had an average of 78 defects and the Europeans 75.

Pull versus push is really a fundamental difference in management philosophy. The former emphasizes continuous adjustments to real-time information and the latter emphasizes detailed planning and control.

The lure of becoming number one may be so powerful that it can persuade even the very best companies to compromise their most cherished values.

Managers of product firms, whenever possible, should pursue services as a strategic lever to help sell products, create new products, de-commoditize old products, build deeper relationships with customers, and generate another source of profits and revenues, especially in mature markets or difficult economic times.

Apple is finally doing well now that it has adopted a broad platform strategy that links together its various products and automated services.

Toyota used to pursue continuous improvement almost like a corporate religion; and Microsoft, at least when Bill Gates ran the company, used to behave as if some upstart company was sure to come along any day and steal a good share of its business. Of course, Microsoft once did this to IBM, and Netscape almost did it to Microsoft.

Managers seem at their best when examining what is right before them, not necessarily what is behind them or far in front. This is where academics can play an enormously significant role in helping everyone learn more about what we know and do not know.

     

See also:

Other Book Reviews

Staying Power: Managing Innovation in an Uncertain World – the author’s review

The World Financial Review: “In December 2005, I was invited by Oxford University to deliver the 2009 Clarendon Lectures in Management Studies and then to produce a book based on those lectures. We decided that I should try to synthesize my research, consulting, and other experiences going back to 1985 with companies ranging from Toyota, Intel, and Microsoft to Google and Apple, described in nine books and nearly one hundred articles. The result is my latest book, Staying Power: Six Enduring Principles for Managing Strategy and Innovation in an Uncertain World. This article is a summary of the key ideas.”

Business and technology platforms change faster now than ever. What does that mean for how companies compete?

MIT Sloan Management Review: “Michael A. Cusumano spoke with MIT Sloan Management Review’s Michael S. Hopkins about the insights in his book, and about what characteristics will most determine competitive success in today’s innovation-driven landscape.”

The Enduring Principles of High-Tech Success

Strategy+business: “As the subtitle suggests, the book is organized into six “enduring” principles; but, as Cusumano points out, their exact meaning and their practical applications have not been fully determined. The principles represent organizational outcomes in successful firms.”

 

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1 Comment

Filed under Book Review, Business, Innovation, Management, Strategy

One response to “BOOK REVIEW: “Staying Power: Six Enduring Principles for Managing Strategy and Innovation in an Uncertain World” by Michael A. Cusumano

  1. A truly interesting post. ☺️

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