HBR’s 10 Must Reads on Strategy, Vol. 2: Complete Summary of Harvard Business Review’s Essential Frameworks for Enduring Business Success

Introduction: What This Book Is About

This comprehensive collection from Harvard Business Review offers essential insights and best practices for aspiring and experienced leaders focused on strategy. It compiles crucial articles that address the dynamic nature of competitive environments, the evolving demands on strategic thinking, and the fundamental shifts required for sustained business success. Readers will gain a deeper understanding of how to formulate, implement, and adapt strategies in a world marked by unpredictability and rapid change.

The book is particularly beneficial for managers, executives, and entrepreneurs who need to navigate complex business landscapes and make informed strategic decisions. It provides frameworks for assessing competitive environments, fostering innovation, managing risks, and embedding purpose and shared value into core business operations. By exploring diverse strategic styles and the forces reshaping industries, readers will be equipped to build robust and adaptable strategies that drive long-term growth and competitive advantage.

This summary aims to provide a complete and engaging overview of all key insights, theories, and practical applications presented in HBR’s 10 Must Reads on Strategy, Vol. 2. It will systematically cover each article, ensuring that no valuable concept or actionable advice is left out, making the book’s wisdom accessible for natural AI discovery and immediate application.

Your Strategy Needs a Strategy by Martin Reeves, Claire Love, and Philipp Tillmanns

This chapter explores how companies must align their strategy-making processes with the specific characteristics of their competitive environments to achieve superior performance. It introduces a practical framework that categorizes strategic styles based on the predictability and malleability of an industry, enabling leaders to choose the most effective approach. The authors argue that many companies fail by applying traditional strategies suited for stable environments to highly volatile or mutable ones.

The Problem with Mismatched Strategies

Many executives are aware of the need to match their strategy-making processes to their competitive environments but often fail to do so in practice. Research shows that a significant percentage of companies rely on approaches better suited to predictable, stable environments, even when their own situations are volatile. This mismatch is a major impediment to success, as the skills and tools required for strategy vary dramatically across different competitive landscapes, from the predictable oil industry to the unpredictable internet software industry. Companies that correctly match their strategic style to their environment perform significantly better, with three-year total shareholder returns 4% to 8% higher on average.

Finding the Right Strategic Style: Predictability and Malleability

To select the appropriate strategic style, leaders must first assess their industry based on two critical factors: predictability (how far and accurately demand, performance, and competitive dynamics can be forecasted) and malleability (the extent to which a company or its competitors can influence these factors). These two variables create a matrix that defines four broad strategic styles: classical, adaptive, shaping, and visionary. Each style is associated with distinct planning practices and is best suited to a particular environment. This framework helps corporate leaders match their strategic approach to the specific conditions of their industry, business function, or geographic market.

Classical Strategy: Optimizing in Predictable, Immutable Environments

The classical strategic style is ideal for industries that are predictable but hard for a company to change. This is the most familiar approach, incorporating frameworks like Porter’s Five Forces and the growth-share matrix. Companies set a clear goal, aiming for the most favorable market position by leveraging their unique capabilities. They then build and fortify this position through orderly, successive rounds of planning using quantitative predictive methods. Long-term plans are typical and remain in place for several years. This style works well as a stand-alone function, as it requires specialized analytical skills and operates on slower time scales, exemplified by major oil companies like ExxonMobil or Shell.

Adaptive Strategy: Engineering Flexibility in Unpredictable, Immutable Environments

When an environment is radically and persistently unpredictable but immutable, an adaptive strategy is essential. In such fast-moving, reactive settings, long-term plans are often useless, and optimizing efficiency is less important than engineering flexibility. Companies constantly refine goals and tactics, shifting or acquiring resources smoothly and promptly. Planning cycles may shrink to less than a year or become continual, with plans taking the form of rough hypotheses based on the best available data. This strategy requires tight linkage between strategy and operations to quickly capture change signals and minimize delays, as demonstrated by specialty fashion retailers like Zara. Zara’s flexible supply chain allows it to design, manufacture, and ship garments in two to three weeks, enabling rapid experimentation and adaptation to changing tastes.

Shaping Strategy: Influencing Unpredictable, Malleable Environments

In unpredictable and malleable environments, a shaping strategy is most effective. This applies to new, high-growth industries with low barriers to entry and high innovation rates, or stagnant, fragmented mature industries ripe for disruption. The goal is to actively shape the unpredictable environment to a company’s advantage before competitors do. Like adaptive strategies, shaping strategies embrace short or continual planning cycles and rely on portfolios of experiments. However, shapers focus beyond their own company, rallying formidable ecosystems of customers, suppliers, and complementors to define attractive new markets, standards, or platforms. Facebook’s opening of its platform to outside developers in 2007 is a prime example, allowing it to benefit from the explosion of social-networking apps and cement its market position.

Visionary Strategy: Building the Future in Predictable, Malleable Environments

The visionary strategic style is appropriate when a company has the power to shape the future and can predict the path to realizing it. This calls for bold, “build-it-and-they-will-come” strategies, akin to those used by entrepreneurs creating entirely new markets or leaders revitalizing companies with new visions. The goal is clear, allowing strategists to take deliberate steps without needing to keep many options open. It prioritizes thorough planning, marshaling resources carefully, and correct implementation to avoid poor execution. UPS’s 1994 decision to invest $1 billion annually to become “the enablers of global e-commerce” is a classic visionary strategy, leading it to capture 60% of the e-commerce delivery market by 2000.

Avoiding Common Strategic Traps

Executives often fall into three common traps: misplaced confidence, unexamined habits, and culture mismatches. Misplaced confidence leads nearly half of executives to overestimate their control over uncertainty and over 80% to believe success depends more on their actions than external factors. Unexamined habits cause almost 80% of executives to start strategic planning by articulating a goal and then analyzing how to achieve it, even in fast-moving environments where speed over accuracy is critical. Culture mismatches occur when cultures that prize efficiency (suited for classical strategies) undermine experimentation and learning, which are essential for adaptive and shaping strategies, especially since failure is a natural outcome of experimentation. To avoid these traps, leaders should regularly review forecast accuracy, objectively gauge predictability and malleability by tracking industry shifts in revenue and profitability, and measure factors like industry youthfulness and innovation rates.

Operating in Multiple Strategic Modes

Companies may need to manage multiple strategic styles simultaneously across different units, functions, or geographic markets due to varying predictability and malleability. For instance, the Chinese business environment is almost twice as malleable and unpredictable as the United States, often calling for shaping strategies. Within the same auto industry, a classical style might optimize production, while a digital marketing department might benefit from a shaping strategy due to its power to influence its environment. The most flexible approach is to allow teams within units to select their own styles, as demonstrated by Haier, a Chinese home-appliance manufacturer, which has organized into thousands of self-contained minicompanies, each accountable for its own P&L and able to adopt different strategic styles based on its specific context. This system ensures every employee is held accountable for achieving profits, tying salary directly to monthly targets.

Transient Advantage by Rita Gunther McGrath

This chapter argues that the traditional idea of building a sustainable competitive advantage is no longer relevant for most businesses in today’s high-velocity world. Instead, companies must embrace transient advantage, continuously launching new strategic initiatives to build and exploit many temporary advantages simultaneously. This approach shifts the focus from defending a single strong position to orchestrating a portfolio of advantages that keeps companies in the lead over the long run, redefining strategy as more fluid, customer-centric, and less industry-bound.

The Rise of Transient Advantage

The business world has been obsessed with sustainable competitive advantage, a concept foundational to most strategy textbooks and investment strategies. However, in today’s unpredictable and amorphous industries, maintaining a truly lasting advantage is rare. Competitive advantages often evaporate in less than a year due to the digital revolution, globalization, and fewer barriers to entry. To stay ahead, companies must constantly start new strategic initiatives, building and exploiting many transient competitive advantages at once. These individually temporary advantages, as a portfolio, can ensure long-term leadership. Firms like Milliken & Company, Cognizant, and Brambles have embraced this, sparking continuous change and viewing strategy as more fluid and customer-centric.

The Life Cycle of a Transient Advantage

Every competitive advantage, whether fleeting or enduring, follows a four-stage life cycle: launch, ramp up, exploitation, and disengagement. When advantages are transient, firms must cycle through these stages much more quickly and frequently. The launch process involves identifying opportunities and mobilizing resources, requiring people comfortable with experimentation and iteration. The ramp up phase scales the business idea, needing individuals who can assemble resources effectively. Exploitation captures profits and market share, demanding skills in M&A, analytical decision-making, and efficiency. Finally, disengagement extracts and reallocates resources from eroding advantages, requiring candid and tough-minded decision-making. Companies that create a pipeline of competitive advantages face the complex challenge of orchestrating many inconsistent activities across these stages. Milliken & Company successfully transitioned from textiles to specialty materials by gradually disengaging from older lines while investing in new ones.

Facing the Brutal Truth: Recognizing Erosion

To compete in a transient-advantage economy, companies must honestly assess whether current advantages are at risk. Many firms, like IBM, Sony, Nokia, and Kodak, fell into trouble by shoring up existing advantages until it was too late, despite early warnings. To identify potential erosion, leaders should ask critical questions, such as: “Do I buy my own company’s products?” “Are we investing more without better margins?” “Are customers finding cheaper solutions ‘good enough’?” “Is competition emerging from unexpected places?” “Are customers no longer excited about our offerings?” “Are our best people leaving?” or “Is our stock perpetually undervalued?” Nodding in agreement with four or more of these statements is a clear warning sign of imminent erosion.

Seven Dangerous Misconceptions to Avoid

Several deeply embedded assumptions can trap companies in a high-velocity environment. The first-mover trap falsely believes that being first guarantees a sustainable position. The superiority trap causes companies to underinvest in improving established offerings, underestimating upstart innovations. The quality trap leads businesses to stick with a level of quality higher than customers will pay for, making them vulnerable to cheaper, simpler alternatives. The hostage-resources trap allows profitable, large businesses to hoard resources, stifling new ventures, as seen when Nokia failed to capitalize on its iPad-like prototype because of its focus on mass-market phones. The white-space trap causes firms to forgo opportunities that don’t fit existing organizational structures. The empire-building trap promotes hoarding and bureaucracy, inhibiting experimentation. Finally, the sporadic-innovation trap means companies lack a systematic process for creating a pipeline of new advantages, making innovation vulnerable to business cycles.

Strategy for Transient Advantage: The New Playbook

Companies need to make eight major shifts in their operations to thrive on transient advantage.

1. Think about arenas, not industries: Instead of narrowly defining competition by industry, focus on arenas, which are combinations of a customer segment, an offer, and a delivery place. This allows for a broader view of competition, as seen when Walmart entered healthcare.
2. Set broad themes, then let people experiment: Leaders should set broad strategic themes and empower teams to try different approaches and business models within them. Cognizant uses “The Future of Work” as an umbrella term, allowing considerable latitude for ground-level initiatives.
3. Adopt metrics that support entrepreneurial growth: Traditional metrics like Net Present Value (NPV) can stifle innovation. Instead, use “real options” logic, making small investments that convey the right, but not the obligation, to commit more later. Intuit employs experimentation as a core strategic process, focusing on “falling in love with the problem” rather than the initial solution.
4. Focus on experiences and solutions to problems: As product features are easily copied, competitive advantage shifts to providing well-designed experiences and complete solutions to customers’ problems. Australia’s Brambles innovated in logistics by designing plastic bins that could be filled in fields and moved directly to shelves, significantly cutting grocers’ labor costs and improving product freshness.
5. Build strong relationships and networks: Personal networks are a powerful remaining barrier to entry. Companies like Intuit, Amazon, and TripAdvisor invest in communities and networks to deepen ties with customers and leverage collective intelligence. Infosys maintains a 97% customer retention rate, demonstrating the value of preserving important relationships.
6. Avoid brutal restructuring; learn healthy disengagement: Instead of disruptive layoffs, continuously adjust and readjust resources. When an initiative is wound down, companies like Infosys aim for it to “find its way to insignificance.” When disengagement is necessary, prepare customers for the transition, as Netflix failed to do in 2011 by abruptly raising prices and splitting services, enraging customers by forcing them to move faster than they were prepared to.
7. Get systematic about early-stage innovation: Establish a governance structure for innovation with separate budgets and staff, allowing senior leaders to make go/no-go decisions outside regular business planning. This ensures a continuous pipeline of new advantages and allows for systematic hunting for opportunities beyond R&D.
8. Experiment, iterate, learn: Treat new ventures with an emphasis on experimentation and learning rather than traditional planning. This involves a discovery phase, followed by business model definition and incubation, before scaling up initiatives. Companies often rush this phase, leading to critical flaws and wasted resources.

Leadership as Orchestration

In the transient-advantage economy, leaders become orchestrators rather than controllers. They set key directional guidelines, implement strong processes for core activities like innovation, and use their influence at crucial inflection points. This requires a new type of leader who initiates conversations that question the status quo, seeks contrasting opinions, and embraces diversity to pick up signals of change. Fast and roughly right decision-making replaces slow, precise deliberations, as missing a window of opportunity can be fatal in a world where advantages last for mere moments. Strategy remains vital, but it is no longer about the status quo.

Bringing Science to the Art of Strategy by A.G. Lafley, Roger L. Martin, Jan W. Rivkin, and Nicolaj Siggelkow

This chapter argues that conventional strategic planning, despite its emphasis on data and analysis, often lacks the true inquiry and creativity central to the scientific method, leading to predictable and uninspired outcomes. To generate novel yet realistic strategies, the authors propose an approach that adapts the scientific method, starting with hypotheses (possibilities), rigorously testing them by defining what must be true for success, and then determining which possibility is most likely to succeed.

The Flaws in Conventional Strategic Planning

Conventional strategic planning is often characterized by rigorous analysis and extensive number crunching, giving it a false sense of scientific validity. However, this approach frequently fails to produce novel strategies, perpetuating the status quo instead. Operations managers often dread the annual strategic planning ritual due to its time consumption and limited impact on company actions. While some respond by pursuing “out-of-the-box” ideation, these efforts often result in ideas that cannot be translated into actionable strategic choices. The authors argue that conventional strategic planning lacks two integral elements of the scientific method: the creation of novel hypotheses and the careful generation of custom-tailored tests.

Step 1: Move from Issues to Choice

Conventional strategic planning tends to be calendar-driven and problem-focused, leading organizations to endlessly investigate data related to issues rather than explore solutions. To avoid this trap, strategists must define the problem as a choice by articulating two mutually exclusive options that could resolve the issue. This framing shifts the focus to what needs to be done next. For example, in the late 1990s, Procter & Gamble (P&G) faced an issue with its weak Oil of Olay brand in skin care. It framed the problem as a choice: dramatically transform Oil of Olay or spend billions to buy an existing major skin care brand. This step, likened to “crossing the Rubicon,” initiates the true strategy-making process by creating a sense of urgency and consequence.

Step 2: Generate Strategic Possibilities

After framing the problem as a choice, the next step is to generate a full range of strategic possibilities. These can be variations of initial options or entirely new ones. A possibility is defined as a “happy story” that outlines how a firm might succeed, specifying where the company plays, how it wins, its advantages, scope, and supporting value chain activities. The story needs to have internally consistent logic but does not require proof at this stage. It is crucial to generate more than one possibility (ideally three to five) and to always include the status quo or current trajectory to force critical evaluation of existing operations. The P&G team surfaced five possibilities for Oil of Olay, including transforming it into a “masstige” brand that would appeal to younger women but be sold in mass channels, which was initially an uncomfortable, bold idea.

Building a Strong Possibility Generation Team

The group tasked with generating strategic possibilities should represent a diversity of specialties, backgrounds, and experiences to foster creativity and ensure detailed fleshing out of ideas. Including promising junior executives who are not emotionally tied to the status quo and individuals from outside the firm or industry can bring fresh perspectives. It is crucial to include operations managers to deepen practical wisdom and build early commitment. The optimal group size varies, but large groups (over 8-10 people) may benefit from breakout sessions to avoid self-censoring. The leader should not be the most senior person and must constantly enforce the rule of suspending judgment during this phase, reframing critiques as conditions to be discussed later. This ensures all possibilities are explored fully before evaluation.

Step 3: Specify the Conditions for Success

This step involves identifying what must be true for each possibility to be a terrific choice, without arguing about whether those conditions are currently true. Conditions should be expressed as declarative statements (e.g., “Channel partners will support us”). The aim is to enumerate all conditions that would make every team member confident in the possibility. This approach helps skeptics articulate their reservations precisely, leading to a clearer understanding of what proof is needed. A framework involving seven categories (industry, customer value, business model, competitors, and others) helps surface these conditions. After generating a comprehensive list, the group must weed out “nice-to-have” conditions, ensuring only “must-have” (binding) conditions remain. This refined list is then vetted with key executives and colleagues to ensure widespread agreement on what constitutes success.

Step 4: Identify the Barriers to Choice

After specifying the conditions for success, the team must critically assess which conditions are least likely to hold true, as these represent the barriers to choosing that possibility. Group members are asked to imagine they could guarantee any one condition, identifying the one they would pick, which reveals the biggest barrier. The process yields an ordered list of two or three key barriers for each possibility that genuinely worry the group. It is crucial to pay close attention to the most skeptical member, as their concerns highlight critical obstacles. Even if only one person is concerned, that condition must be kept on the list to ensure buy-in and prevent future dismissal of analysis. For the Olay masstige possibility, P&G’s team identified three key barriers: mass-channel consumers accepting a new, significantly higher price point, mass-channel players supporting a new “masstige” segment, and P&G’s ability to integrate prestigelike branding in mass retail.

Step 5: Design Tests for the Barrier Conditions

For each key barrier condition, the group must design a test that they all believe is valid and sufficient to either reject the possibility or generate commitment to it. The most skeptical member regarding a given condition should lead the design and application of its test, as they typically have the highest standard of proof. This ensures that if they are satisfied, others will likely be too. This process avoids unachievable standards through the “mutually assured destruction” principle: if one sets the bar too high, others will reciprocate for their preferred possibilities. This step focuses on targeted, deep analysis rather than broad, expensive parallel analyses typical of traditional consulting.

Step 6: Conduct the Tests

This step typically follows “the lazy man’s approach to choice”: testing conditions in the reverse order of the group’s confidence (i.e., the least likely condition is tested first). If the suspicion is correct and the condition fails, the possibility can be eliminated, saving significant resources. This step often involves bringing in outside experts or consultants to fine-tune and conduct the prioritized tests, ensuring they focus solely on testing the specified conditions. For P&G’s Olay masstige possibility, the team’s most challenging condition was pricing. Their test revealed that a price point of $18.99 was “great”, attracting consumers from prestige stores and signaling premium quality to mass shoppers, while $15.99 was “no-man’s land”. This precise testing helped uncover unexpected and successful strategic insights.

Step 7: Make the Choice and Overcome Mind-Set Shifts

With the possibilities-based approach, making the final strategic choice becomes simple and often anticlimactic, as the group merely reviews the analytical test results and selects the possibility with the fewest serious barriers. This often leads to surprisingly bold strategies that might have been stifled by traditional processes. P&G’s decision to launch Olay Total Effects at $18.99 transformed a weak brand into a $2.5 billion global skin care brand within a decade, attracting prestige shoppers and commanding higher prices. This approach requires three fundamental shifts in mind-set: from “What should we do?” to “What might we do?” (generating possibilities); from “What do I believe?” to “What would I have to believe?” (specifying conditions); and from “What is the right answer?” to “What are the right questions?” (designing tests). This fosters genuine inquiry crucial for scientific strategy.

Managing Risks: A New Framework by Robert S. Kaplan and Anette Mikes

This chapter addresses the common flaw in risk management: treating it as a mere compliance issue solved by rules, which fails to prevent major disasters or foster strategic growth. The authors propose a new framework that categorizes risks into three types—preventable, strategy, and external—each requiring a distinct management approach. They emphasize that strategy and external risks necessitate open, explicit discussions that counteract individual and organizational cognitive biases, anchoring these dialogues in strategic planning and implementation processes.

The Problem with Rules-Based Risk Management

Many companies treat risk management as a compliance issue, believing it can be solved by drawing up rules and ensuring employees follow them. This approach is wholly inadequate for preventing severe damage or fostering strategic growth. For instance, BP’s focus on minor safety rules under CEO Tony Hayward did not prevent the Deepwater Horizon oil rig explosion in 2010, which was attributed to management failures in identifying and addressing risks. Rules-based systems may control employee behavior, but they are unsuitable for managing risks inherent in strategic choices or those arising from major external disruptions. Effective risk management requires fundamentally different approaches based on open and explicit discussions, rather than a checklist mentality.

Understanding the Three Categories of Risk

To create an effective risk-management system, organizations must distinguish among three qualitative categories of risk, each requiring a different management approach.

1. Preventable Risks: These are internal risks arising from within the organization that are controllable and should be eliminated or avoided. Examples include unauthorized, illegal, unethical, or inappropriate actions by employees and managers, or breakdowns in routine operational processes. These risks offer no strategic benefits and are best managed through active prevention, monitoring operational processes, and guiding behavior towards desired norms, as detailed in the sidebar “Identifying and Managing Preventable Risks.” Companies should institute strong internal control systems and active whistle-blowing programs.
2. Strategy Risks: These are risks a company voluntarily accepts to generate superior returns from its strategy, such as credit risk in lending or R&D risks. Unlike preventable risks, they are not inherently undesirable. Managing strategy risks is crucial for capturing potential gains. They cannot be managed through a rules-based control model; instead, they require a system designed to reduce the probability of materialization and improve the company’s ability to manage or contain risk events if they occur. This approach enables companies to undertake higher-risk, higher-reward ventures.
3. External Risks: These risks arise from events outside the company’s influence or control, such as natural disasters, political shifts, or major macroeconomic changes. Since companies cannot prevent these events, management must focus on identification and mitigation of their impact. These risks require distinct approaches, as their timing and specific impact are often unpredictable.

Why Risk Is Hard to Talk About: Cognitive and Organizational Biases

Individuals have strong cognitive biases that hinder open discussion and proactive management of risk. People often overestimate their ability to influence events, are overconfident about forecasts, and make narrow assessments of outcomes, anchoring estimates to readily available evidence. This is compounded by a confirmation bias, favoring information that supports existing positions. When events deviate, there is a tendency to escalate commitment, irrationally pouring more resources into failed actions. Organizational biases like groupthink further suppress objections, especially under overbearing leaders, leading to the normalization of deviance where minor failures are tolerated as false alarms. Effective risk-management processes must actively counteract these deep-seated biases. JPL’s chief systems engineer, Gentry Lee, highlights the challenge of getting project teams to comfortably discuss what could go wrong, even among elite, successful engineers.

Managing Strategy Risks: Tailored Approaches

The authors identified three distinct approaches to managing strategy risks, tailored to an organization’s context, all encouraging challenge and debate.

1. Independent Experts: Suitable for organizations like JPL that pursue long, complex, and expensive product-development projects with high intrinsic, but slowly changing, risks (e.g., from known laws of nature). JPL uses a risk review board of independent technical experts to challenge engineers’ designs, assessments, and mitigation decisions throughout the development cycle. These meetings foster a “culture of intellectual confrontation,” ensuring engineers think about and defend their decisions. The board also has authority over budgets, setting cost and time reserves (e.g., 10% to 75% contingency based on innovativeness) to address inevitable problems without jeopardizing launch dates.
2. Facilitators: For organizations like Hydro One, a Canadian electricity company, operating in stable technological and market environments where risks accumulate gradually from seemingly unrelated operational choices across a complex organization. A small central risk-management group collects information from operating managers, increasing awareness of risks. Chief Risk Officer John Fraser runs dozens of workshops where employees anonymously vote on and debate principal risks to strategic objectives, developing a consensus view recorded on a visual risk map. Accountability is strengthened by linking capital allocation and budgeting decisions to identified risks, with hundreds of millions allocated to projects that reduce risk effectively.
3. Embedded Experts: Ideal for volatile industries like financial services, where an investment bank’s risk profile can change dramatically with a single deal or market movement. JP Morgan Private Bank adopted this model in 2007, embedding risk managers within the line organization. These market-savvy experts continuously ask “what if” questions, challenging portfolio managers’ assumptions and forcing them to consider different scenarios, including extreme stress conditions. They assess how proposed trades affect the entire investment portfolio’s risk, helping redesign trades to avoid concentrating specific risks. The main danger, “going native” (aligning with business unit goals), is managed by senior risk officers and the CEO, who set the company’s risk culture.

Avoiding the Function Trap and Integrating Risk into Strategy

Many companies fall into the “function trap” by compartmentalizing strategy and external risks along business function lines (e.g., “credit risk,” “brand risk,” “IT risk”). This creates organizational silos that disperse information and responsibility, hindering discussions about how different risks interact and making the company vulnerable to reinforcing combinations of small events. To overcome this, companies must develop a companywide risk perspective by anchoring discussions in strategic planning. Infosys, an Indian IT services company, uses its Balanced Scorecard to generate risk discussions, identifying risks to specific business objectives. For example, recognizing the risk of client default from growing large client relationships, Infosys began monitoring credit default swap rates as a leading indicator, accelerating receivables collection when rates increased. Volkswagen do Brasil uses its strategy map and Risk Event Cards to systematically identify and mitigate risks, summarizing results on a Risk Report Card for senior management. Infosys also uses a dual risk structure with a central team and decentralized functional teams, escalating only exceptions.

Managing the Uncontrollable: External Risks

External risks, largely beyond a company’s control, cannot be reduced or avoided through internal approaches. Management must focus on identification, impact assessment, and mitigation. Some imminent external risks can be treated like strategy risks; for instance, Infosys treated protectionism as a strategy risk by monitoring employee dual citizenships and adapting recruiting policies. However, most external risks require different analytical tools due to low probability or difficulty envisioning them.

1. Tail-Risk Stress Tests: Used to assess major and immediate changes in one or two specific variables (e.g., tripling oil prices, major institution default). Benefits depend critically on assumptions, and many banks failed in 2007-2008 by anchoring their stress tests in recent, overly optimistic data (e.g., U.S. housing prices leveling off instead of declining).
2. Scenario Planning: Suited for long-range analysis (5-10 years out). Companies examine political, economic, technological, social, regulatory, and environmental forces, selecting four key drivers and estimating their maximum/minimum values to create multiple plausible future scenarios (typically 16, then reduced). Managers assess how their strategy would perform in each scenario, allowing for modification or contingency planning based on early indicators. Shell Oil pioneered this in the 1960s.
3. War-Gaming: Assesses a firm’s vulnerability to disruptive technologies or changes in competitors’ strategies over a shorter horizon (1-2 years). Teams devise plausible near-term actions that existing or potential competitors might adopt, helping to overcome the bias of leaders to ignore counter-evidence. For non-preventable events, companies can mitigate risks using insurance, hedging (e.g., airlines using financial derivatives against fuel price spikes), or investing in protective measures (e.g., earthquake-resistant facilities). Companies with different but comparable risks can also cooperate (e.g., universities backing up each other’s IT data centers).

The Leadership Challenge in Risk Management

Managing risk is fundamentally different from managing strategy, as it focuses on threats and failures, running counter to the “can do” culture leaders foster. Many leaders are reluctant to invest time and money now to avoid uncertain future problems, and risk mitigation typically involves dispersing resources and diversifying investments, which is the opposite of the intense focus of successful strategy. Therefore, most companies need a separate function for strategy and external-risk management, reporting directly to the top team. Its most critical task is nurturing a close relationship with senior leadership. Goldman Sachs and JPMorgan Chase, which weathered the 2008 financial crisis well, had strong internal risk-management functions and leaders who understood their multiple risk exposures, with JPMorgan CEO Jamie Dimon famously stating, “I may have the title, but Jamie Dimon is the chief risk officer of the company.” Risk management, though nonintuitive, is crucial for companies to withstand inevitable storms.

Surviving Disruption by Maxwell Wessel and Clayton M. Christensen

This chapter reframes the traditional response to disruptive innovation, asserting that disruption is a process, not a singular event. It provides a systematic method for charting the path and pace of disruption, enabling companies to identify which parts of their business are most vulnerable and which can be defended. The authors introduce the concept of the “extendable core” as the disrupter’s key advantage and emphasize understanding customer “jobs to be done” to evaluate relative advantages and future vulnerabilities, moving beyond a simplistic “disrupt or be disrupted” mindset.

Disruption as a Process, Not a Single Event

Disruptive innovations are often viewed as “missiles” that swiftly annihilate established businesses, leading to the conventional prescription of “disrupt yourself.” However, disruption is less a single event and more a process that unfolds over time, sometimes quickly, but often slowly and incompletely. Examples include cargo ships still existing despite air transport, legacy airlines persisting alongside Southwest, and box-office receipts remaining significant despite VCRs. Managers must not only consider developing their own disruptions but also the fate of their legacy operations, which may have decades of profitability ahead. To systematically chart the path and pace of disruption, companies need to identify the disrupter’s strengths (extendable core), identify their own relative advantages (customer jobs to be done), and evaluate conditions that hinder the disrupter from co-opting future advantages.

Where Advantage Lies: The Extendable Core

What makes an innovation disruptive is its technological or business model advantage that can scale as it moves upmarket, allowing the disrupter to maintain its performance advantage while serving more demanding customers. This advantage is known as the extendable core. Unlike simple price competition, where lowering prices requires adopting a similar cost structure (e.g., Holiday Inn vs. Four Seasons), a disruptive innovation allows the upstart to preserve or increase its cost advantage while improving performance. For instance, personal computers (PCs) were disruptive because their manufacturers achieved radical cost advantages by using standardized components. As component makers improved, PC makers could increase power and utility while maintaining cost efficiency, a path unavailable to minicomputer makers reliant on costly custom systems. The extendable core tells you what types of customers a disrupter can attract and what types it won’t, based on whether its core advantage is suited to their needs. For example, online universities struggle with students seeking exclusivity or social campus experiences.

Where Advantage Matters: Customer Jobs to Be Done

To understand how many customers a disrupter might attract, companies must determine what jobs people are “hiring” their products and services to do. People buy products not for their intrinsic value, but to complete some job that arises in their lives. For instance, a college student buys cleaning supplies to clean his room before his parents arrive, valuing the solution to the family relationship “job.” Successful entrepreneurs naturally frame opportunities in terms of these “jobs.” This “jobs to be done” approach helps identify how effective a disrupter will be at doing the same jobs, revealing the most vulnerable segments of a core business and its most sustainable advantages. When a disrupter offers a significant advantage with no disadvantages in doing a job, disruption will be swift and complete (e.g., online music vs. CDs). However, when the disrupter’s extendable core is ill-suited to the job, and its disadvantages are considerable, disruption will be slower and incomplete (e.g., cargo ships for heavy goods, movie theaters for social outings, Ivy League universities for elite status).

When Advantage Persists: Barriers to Disruption

To determine if a company’s current advantages might evaporate, it’s crucial to assess how easily a disrupter can overcome its disadvantages. The authors propose a systematic assessment of five types of barriers to disruption, from easiest to hardest to overcome:

1. The Momentum Barrier: Customers are used to the status quo and resist switching.
2. The Tech-Implementation Barrier: The disrupter needs to implement existing technology to overcome a disadvantage.
3. The Ecosystem Barrier: Overcoming the disadvantage requires a change in the broader business environment, such as the entire supply chain or regulatory landscape. For example, cargo ships benefit from an ecosystem barrier due to integrated container designs.
4. The New-Technologies Barrier: The technology needed to change the competitive landscape does not yet exist. This is a formidable barrier, such as developing cheap, renewable jet fuel for airlines to dramatically lower shipping costs.
5. The Business Model Barrier: The disrupter would have to adopt the incumbent’s cost structure, thereby destroying its own cost advantage. For example, an online grocer building physical stores to provide immediate emergency items would face this barrier.

The more difficult the barrier, or the more barriers a disrupter faces, the more likely customers will remain with incumbents. Overestimating a threat can be as costly as ignoring it, leading to misallocation of resources (e.g., price drops) in areas where disruption is unlikely.

Case Study: The Disruption of Retail Grocery Stores

Online retailing has devastated brick-and-mortar stores, but the grocery industry remains a bastion, with only about 1% of groceries bought online in the U.S. However, online grocers like Peapod, NetGrocer, and FreshDirect are poised for increased significance as they innovate upmarket. Their extendable core lies in radical cost advantages from centralized warehouses, purchasing at greater scale, and avoiding costly sales staff, despite shipping and logistics challenges.

To understand the impact of this disruption, one must analyze the “jobs” traditional grocers perform:

• Weekly Grocery Pickup (stocking up on nonperishables): This job is most susceptible to disruption by online grocers. Shoppers value broad selection and lower prices, and are often willing to wait for delivery. Early successes of Diapers.com and Soap.com demonstrate this shift. Online grocers face no business model barrier, no new-technology barrier, and a weakening momentum barrier. The main remaining barrier is an ecosystem shift, which is likely to occur as entrepreneurs find profitable ways to serve this market separately (e.g., through farmers’ markets or smaller-format fresh goods stores).
• Emergency Items (e.g., toothpaste): Online grocers face a formidable business model barrier here. To provide instant delivery, they would need to build physical stores or send out trucks at sub-optimal capacity, destroying their cost advantage. Customers prioritize immediate access over price or selection, turning to convenience stores or supermarkets.
• Picking up Dinner Ingredients (fresh perishables): Online grocers face significant disadvantages. Shoppers value seeing and examining perishable ingredients before purchase. While online grocers may guarantee freshness, customers feel comforted by physical inspection. Only a compelling offer like Gilt Taste’s deeply discounted gourmet products can substitute for this.

Traditional grocery retailers should not fight the disruption of staples head-on. Instead, they should focus on strengthening their defensible jobs like serving emergency shoppers and those gathering dinner ingredients, outcompeting convenience stores on price and quality (especially perishables) and farmers’ markets on selection. They should rethink store layouts to aid dinner planning and consider high-end semi-prepared meals to recapture margins. They might even experiment with locating shelf space inside other conveniently located retail outlets, like a branded Trader Joe’s aisle inside CVS.

The Great Repeatable Business Model by Chris Zook and James Allen

This chapter posits that enduringly successful companies build their strategies not on constant reinvention, but on a few vivid and robust forms of differentiation that act as a reinforcing system. It argues that sustained growth comes from replicating these core differentiators in new contexts and embedding them into repeatable routines, behaviors, and activity systems that every employee understands and follows. The authors emphasize that powerful differentiation delivers profits only when supported by simple, nonnegotiable principles and robust learning systems that drive continuous adaptation.

Differentiation as the Core of Strategy

Differentiation is the essence of strategy and the primary source of competitive advantage. Companies earn money by being distinct from competitors in ways that allow them to serve their core customers better and more profitably. Sharper differentiation leads to greater advantage, as seen with Tetra Pak’s carton packages that extend shelf life, stack efficiently, and reduce refrigeration needs, supported by unique laminated material and high-volume packaging machines. In a study of companies with sustained high performance, over 80% had well-defined and easily understood differentiation at the core of their strategy. Examples include Nike’s brand power and athlete relationships, Singapore Air’s premium service at reasonable cost, and Apple’s deep capabilities in easy-to-use software and integrated systems.

The Problem of Fading Differentiation and Complexity

While differentiation is crucial, it tends to wear with age, often due to internal problems rather than just external competition. The growth generated by successful differentiation often begets complexity, causing companies to forget their core strengths. Products proliferate, acquisitions take firms far from their core, and frontline employees lose touch with strategic priorities, leading to a lack of consistency that kills economies of scale and retards learning. This leads many companies to believe they must rapidly and dramatically “reinvent” or “disrupt” their entire business models. However, the authors’ research over 15 years suggests that most truly successful companies do not engage in periodic “binge and purge” strategies. Instead, they relentlessly build on their fundamental differentiation, going from strength to strength by delivering their differentiation to the front line and adapting constantly to market changes. The result is a simple, repeatable business model that generates sustained growth.

Sources of Differentiation: The Differentiation Map

The authors cataloged 250 assets or capabilities contributing to differentiation, categorizing them into three major clusters of five categories each (e.g., customer, operations, product/service, finance, and culture). This “Differentiation Map” suggests over 5,000 distinct ways a company can differentiate itself (or over a million if categories are broken down further). Enduring performers build strategy on a few vivid, robust forms of differentiation that act as a reinforcing system. For example, Vanguard, founded by John Bogle, differentiated itself with a low-cost mutual fund “engine” (index funds), a direct-to-customer distribution system that avoided middlemen, and consequently, the highest level of customer loyalty in the industry. Despite this, the research found that most management teams spend little time discussing or measuring their “crown jewels,” leading to a lack of clarity throughout organizations. Over half of frontline employees are unclear on strategic tenets, and fewer than 10% of customers agree with managers that their companies are strongly differentiated.

Making Differentiation Repeatable: A Systematic Approach

A systematic approach to understanding differentiation is crucial for focusing innovation and ensuring it is transferable. The authors recommend rating the success of your past 20 growth investments to identify common differentiating factors. When deliberating, ask:

• Are they truly distinctive?
• Are they measurable against competitors?
• Are they relevant to what you deliver to your core customers?
• Are they mutually reinforcing?
• Are they clear at all levels of the company?

Many companies fail these tests, but the most successful ones pass them consistently. This clarity helps focus innovation resources precisely where threats and change are greatest, as most innovations affect only one part of a business model. The authors provide six actions to ensure differentiation is easier to repeat: agree on differentiation with management, verify frontline agreement, write strategy on a single page centered on differentiation, conduct postmortems on growth investments to see transferred differentiators, translate strategy into nonnegotiable principles embedded in routines, and review health indicators for core business and differentiators to drive learning and adaptation.

Growth Based in Differentiation: The Repeatable Model in Action

The most effective way to grow is by replicating your strongest strategic advantage in new contexts. Companies typically expand by:

• Creating or purchasing new products and services.
• Creating or entering new customer segments.
• Entering new geographic locations.
• Entering related lines of business.

The power of a repeatable model lies in its ability to turn sources of differentiation into routines, behaviors, and activity systems that everyone understands and follows. Olam International, starting as a cashew trader, differentiated by managing its supply chain from “farm gate to shop door,” cutting out middlemen and gaining market intelligence. This deep knowledge of small farmers and a robust risk management system became repeatable capabilities. Olam replicated these by expanding into new countries (65 currently) and new agricultural products (20 now), adding farmers and customers, and even developing new differentiating features like a repeatable formula for M&A and deal integration. This evolution demonstrates how repeatable differentiation adapts and generates sustained growth.

Supporting Differentiation: Nonnegotiable Principles

A fundamental building block of repeatability is nonnegotiable principles, which keep everyone aligned. Research shows that 83% of top-performing businesses had explicit, widely understood principles, compared to only 26% of worst performers. This link between shared core principles and frontline behavior was most highly correlated with business performance among all factors studied. Nonnegotiables translate the most important beliefs underlying a company’s differentiation into prescriptive statements that all employees can understand and use for trade-offs and decisions. For Olam, living in rural areas to understand farmers and prioritizing relationships with local farmers are nonnegotiables. For Tetra Pak, the principle is that “the package must save more than it costs,” a standard applied to every new product and equipment line, driving consistent cost-reduction innovation. When companies internalize these principles, communication improves, self-organization is fostered, and business speed increases, allowing them to capture growth opportunities faster than competitors.

Supporting Differentiation: Robust Learning Systems

For differentiation to endure, successful organizations must also learn quickly and adapt to new circumstances. 48% of top performers had strong learning systems, compared to only 9% of others. The downfall of companies like Kodak, General Motors, and Nokia often stemmed from arrested adaptation—failure to change fast enough, rather than hard-to-predict disruptions. The most common learning method in companies with great repeatable models is direct, immediate customer feedback. Net Promoter systems, used by Vanguard and Apple retail, ask customers simple questions about satisfaction and willingness to recommend, providing powerful, scannable data. Hilti, a toolmaker, maintains a differentiated strength through its direct sales force, whose real-time interactions at job sites provide invaluable customer feedback that drives intensive product innovation and allows Hilti to command significant price premiums. Real-time response is a growing competitive weapon, enabling fast movers to operate within competitors’ decision cycles, leading to higher shareholder returns.

Pipelines, Platforms, and the New Rules of Strategy by Marshall W. Van Alstyne, Geoffrey G. Parker, and Sangeet Paul Choudary

This chapter explains how the rise of platform businesses is fundamentally transforming competition and rendering traditional “pipeline” strategies insufficient. It details how platforms, by connecting producers and consumers and leveraging network effects, have enabled companies like Apple and Google to rapidly dominate industries. The authors argue that success in this new landscape requires a shift from controlling resources and optimizing internal processes to orchestrating external interactions and maximizing ecosystem value, along with adopting new metrics and governance approaches.

The Shift from Pipeline to Platform Dominance

In 2007, five major mobile-phone manufacturers controlled 90% of global industry profits, but by 2015, Apple’s iPhone alone generated 92%. This dramatic shift is explained by Apple (and Google’s Android) exploiting the power of platforms. Traditional pipeline businesses create value by controlling a linear series of activities (the classic value chain), like Apple’s handset business. Platforms, however, bring together producers and consumers in high-value exchanges, with information and interactions as their chief assets. The App Store, for example, connected app developers and iPhone owners, creating value for both groups through network effects—where the value increases as the number of participants grows. By January 2015, the App Store offered 1.4 million apps and had generated $25 billion for developers. While pure pipeline businesses still exist, platforms virtually always win when they enter the same marketplace, prompting pipeline giants like Walmart and GE to incorporate platforms.

The Structure and Shifts of Platform Business Models

All platforms share a basic ecosystem structure comprising four types of players:

1. Owners: Control intellectual property and governance.
2. Providers: Serve as the interface with users (e.g., iPhone itself).
3. Producers: Create offerings (e.g., app developers).
4. Consumers: Use the offerings (e.g., app users).

The move from traditional “pipeline” to “platform” involves three key strategic shifts:

1. From resource control to resource orchestration: Unlike pipelines that gain advantage by controlling scarce assets (mines, IP), platforms’ hard-to-copy assets are the community and the resources its members contribute (e.g., rooms, cars, ideas). The network itself becomes the chief asset.
2. From internal optimization to external interaction: Pipeline firms optimize internal labor and resources along a value chain. Platforms create value by facilitating interactions between external producers and consumers, often shedding even variable production costs. The emphasis shifts from dictating processes to persuading participants, making ecosystem governance essential.
3. From a focus on customer value to a focus on ecosystem value: Pipelines maximize the lifetime value of individual customers at the end of a linear process. Platforms maximize the total value of an expanding ecosystem through a circular, iterative, feedback-driven process, sometimes subsidizing one type of consumer to attract another.

The Power of Network Effects in the Platform Economy

The industrial economy was driven by supply-side economies of scale, where massive fixed costs and low marginal costs allowed higher sales volume to reduce average costs, leading to price cuts and monopolies (e.g., Carnegie Steel, Standard Oil). This strategy focused on building barriers. Conversely, the internet economy is driven by demand-side economies of scale, or network effects, enhanced by technologies for social networking and demand aggregation. Here, firms with higher “volume” (more platform participants) offer higher average value per transaction because larger networks provide better matches and richer data. Greater scale creates more value, attracting more participants, forming a virtuous loop that also produces monopolies (e.g., Alibaba, Google, Facebook). Unlike Porter’s Five Forces, which views external forces as “depletive,” platforms see them as “accretive,” adding value; thus, supplier and customer power can be assets.

How Platforms Change Competitive Strategy

In the platform world, competitive dynamics are more complex and fluid.

• Forces within the Ecosystem: Platform participants (consumers, producers, providers) usually create value but may defect or even compete directly with the platform owner. For example, Zynga started as a producer on Facebook but tried to migrate users to its own platform, and Netflix (a provider on telecom platforms) extracts value while relying on their infrastructure. Platforms must constantly encourage accretive activity (e.g., Uber riders becoming drivers) while monitoring depletive activity.
• Forces Exerted by Ecosystems: Platform businesses aggressively expand into seemingly unrelated industries with little warning, rapidly transforming competitors. Google moved from search to mobile OS, home automation (Nest), and driverless cars, challenging traditional players like Siemens (in thermostats) or Swatch (in watches). Competitive threats follow three patterns: an established platform leveraging superior network effects to enter a new industry (Google), a competitor targeting overlapping customer bases with a new offering leveraging network effects (Airbnb, Uber), or platforms collecting similar data suddenly entering your market (e.g., health care platforms from providers, wearables, and pharmacies).

Strategic Focus, Access, and Governance on Platforms

With platforms, the strategic focus shifts from growing sales to optimizing interactions—exchanges of value between producers and consumers (e.g., a video view or a “thumbs-up”). The ultimate source of competitive advantage is the number of interactions and associated network effects. A critical strategic aim is strong up-front design to attract desired participants and enable “core interactions” that generate high value, even if initially low volume. Successful platforms typically launch with a narrow focus and then expand into adjacent markets (e.g., Facebook connecting Harvard students, then all college students, then everyone; LinkedIn adding recruitment and publishing).

Strategy also shifts from erecting barriers to eliminating barriers to production and consumption to maximize value creation. Platform executives must make smart choices about access (who to allow on the platform) and governance (what participants are allowed to do). An open architecture allows access to platform resources (like app developer tools), while open governance allows others to shape rules and reward sharing. Effective governance inspires outsiders to bring valuable IP to the platform, as Zynga did with FarmVille on Facebook, which practices “permissionless innovation” to let producers invent without approval while guaranteeing value sharing. However, unfettered access can destroy value by creating “noise” (misbehavior or low-quality content), as Chatroulette found with its “naked hairy man” problem, which forced it to reduce openness with user filters. Successful platforms manage openness to maximize positive network effects (e.g., Airbnb/Uber ratings, App Store filtering).

New Metrics for the Platform Economy

Leaders of pipeline businesses focus on metrics like inventory turnover and margins. For platforms, new metrics are critical to monitor and boost core interactions:

• Interaction Failure: Measures when the platform fails to match supply with demand (e.g., “no cars available” on Lyft). Frequent failures diminish network effects, leading to higher driver downtime and reduced user engagement.
• Engagement: Tracks participation that enhances network effects, such as content sharing and repeat visits. Facebook tracks the ratio of daily to monthly users.
• Match Quality: Assesses the effectiveness of matches between user needs and producer offerings. Google constantly refines search results based on users’ clicking and reading behavior.
• Negative Network Effects: Identifies problems like congestion or misbehavior that create negative feedback loops. Platforms must use governance tools to mitigate these (e.g., withholding privileges, banishing troublemakers).

Platforms must also understand the financial value of their communities and network effects. The high valuations of demand economy firms like Uber (founded 2009) surpassing supply economy firms like GM (founded 1908) in 2016 clearly indicate that traditional financial metrics alone are insufficient to capture platform worth.

Leadership as Orchestration in the Platform World

The shift to platforms demands new leadership styles. The skills for tightly controlling internal resources are irrelevant for nurturing external ecosystems. While pure platforms are born with an external orientation, traditional pipeline firms must develop new core competencies and mind-sets to design, govern, and nimbly expand platforms on top of existing businesses. The failure to make this leap explains the precarious situation of traditional businesses like hotels, healthcare providers, and taxis. Rupert Murdoch’s management of MySpace as a top-down, bureaucratic pipeline business, focused on internal operations rather than fostering the ecosystem, led to its decline. The message is clear: traditional firms must learn the new rules of strategy for a platform world, or plan their exit.

Why the Lean Start-Up Changes Everything by Steve Blank

This chapter introduces the “lean start-up” methodology as a revolutionary approach to launching new ventures, replacing traditional, risky methods of elaborate planning and stealth development. It highlights how lean principles—experimentation, customer feedback, and iterative design—reduce the risk of failure by prioritizing the search for a repeatable and scalable business model over executing a fixed business plan. The author explains how this methodology, combined with other technological and economic trends, is fostering a new entrepreneurial economy and influencing even large corporations.

The Fallacy of the Perfect Business Plan

Traditionally, launching a new enterprise involved creating a static business plan with five-year forecasts, written in isolation before any customer interaction or product development. This assumed that most unknowns could be figured out in advance. However, this conventional wisdom is flawed:

• Business plans rarely survive first contact with customers, as famously noted by Mike Tyson: “Everybody has a plan until they get punched in the mouth.”
• Five-year plans for unknowns are generally fiction, serving little purpose beyond satisfying venture capitalists.
• Start-ups are not smaller versions of large companies; they don’t follow master plans. Successful ones “go quickly from failure to failure, all the while adapting, iterating on, and improving their initial ideas as they continually learn from customers.”

The critical difference is that existing companies execute a business model, while start-ups search for one. This distinction defines a lean start-up as a “temporary organization designed to search for a repeatable and scalable business model.”

The Three Key Principles of the Lean Start-Up Method

The lean method operates on three core principles:

1. Business Model Canvas over Intricate Plans: Instead of months of planning, entrepreneurs accept that they begin with a series of untested hypotheses (good guesses). These are summarized in a “business model canvas,” a single-page diagram outlining how a company creates value for itself and its customers, covering nine building blocks. This visual tool helps organize initial assumptions.
2. Customer Development: “Get Out of the Building”: Lean start-ups use a rigorous approach called customer development to test their hypotheses. They engage directly with potential users, purchasers, and partners to get feedback on product features, pricing, distribution, and customer acquisition strategies. The emphasis is on nimbleness and speed: rapidly assembling minimum viable products (MVPs) and immediately eliciting customer feedback. This iterative process allows them to revise assumptions or “pivot” (make substantive adjustments) when ideas aren’t working.
3. Agile Development: Iterative and Incremental Product Building: Originating in software, agile development works hand-in-hand with customer development. It eliminates wasted time and resources by developing products iteratively and incrementally, rather than through typical yearlong cycles. This is the process by which start-ups create their MVPs for testing. For example, Blue River Technology’s founders initially aimed for robotic lawn mowers but, after talking to over 100 customers in 10 weeks, discovered a huge demand from farmers for automated weed killing, leading them to pivot and rapidly build a prototype.

The Decline of Stealth Mode and the Rise of Transparency

The lean start-up methodology has made concepts like “stealth mode” and highly orchestrated “beta” tests obsolete. It asserts that customer feedback matters more than secrecy in most industries, and constant feedback yields better results than cadenced unveilings. The core ideas for this approach, initially articulated by Steve Blank in The Four Steps to the Epiphany (2003), gained significant traction when Eric Ries, building on Blank’s work, coined the term “lean start-up” in 2004, drawing parallels to lean manufacturing. The methodology has been further popularized by books like Business Model Generation (2010) by Osterwalder and Pigneur, and Ries’s The Lean Startup (2011). It is now taught in over 25 universities, in online courses, and at events like Startup Weekend, where businesses can form and even generate revenue within a single weekend.

Creating an Entrepreneurial, Innovation-Based Economy

While not guaranteeing individual success, the lean process applied across a portfolio of start-ups results in fewer failures than traditional methods. This has profound economic consequences, as job growth in the 21st century relies on new ventures. The lean approach reduces two key constraints that historically limited start-up growth: the high cost of acquiring the first customer and getting the product wrong, and long technology development cycles. It also makes start-ups less risky, addressing the limited appetite for entrepreneurial risk. Other trends amplifying this impact include:

• Reduced development costs: Open source software (GitHub) and cloud services (Amazon Web Services) have slashed software development costs from millions to thousands. Hardware start-ups can now use accessible offshore manufacturers, like Roominate, which built prototypes in China within weeks.
• Decentralized access to financing: New super angel funds, accelerators (Y Combinator, TechStars), and crowdsourcing sites (Kickstarter) democratize early-stage investments, moving beyond the traditional VC club.
• Instant availability of information and expertise: The internet provides vast start-up advice, with lean concepts offering a framework to discern quality.

The U.S. National Science Foundation (NSF) began using lean methods in its Innovation Corps program in 2011 to commercialize basic science research. MBA programs are also adopting these techniques, recognizing that new ventures need their own management tools distinct from those for established companies. Business plan competitions are being replaced by business model competitions, with Harvard Business School making this switch in 2012.

A New Strategy for the 21st-Century Corporation

Lean start-up practices are proving valuable not just for young tech ventures, but also for large corporations facing increasing external threats and the need for continual innovation. Companies like General Electric (GE), Qualcomm, and Intuit have begun implementing lean start-up methodology. For example, GE’s Energy Storage division, under Prescott Logan, applied lean techniques to a new battery (Durathon). Instead of traditional product launch, Logan focused on customer discovery, meeting with dozens of global prospects without PowerPoint slides to listen to their issues and operating conditions. This feedback led to a major pivot: eliminating data centers as a target segment and discovering utilities, and narrowing “telecom” to cell phone providers in developing countries with unreliable grids. This approach led to a $100 million investment in a manufacturing facility and a backlog of orders by 2012. The first century of management education focused on executing existing business models; now, lean start-up provides tools for searching for new business models and dealing with continual disruption, transforming business in the 21st century.

Strategy Needs Creativity by Adam Brandenburger

This chapter argues that while rigorous analytical tools are essential for understanding existing business contexts, they fall short in generating groundbreaking, game-changing strategies. The author advocates for integrating creativity explicitly into strategy making by introducing tools designed to foster “cognitively distant” thinking. He explores four practical approaches—contrast, combination, constraint, and context—that help strategists break from conventional thought patterns, invent genuinely new ways of doing business, and make creative yet realistic leaps beyond the obvious.

The Gap Between Analysis and Creativity in Strategy

Business school students and executives often feel a frustration in strategy education: professors teach rigorous analytical tools (e.g., Five Forces, value net), but these tools are better suited for understanding existing business contexts than for dreaming up ways to reshape them. Game-changing strategies, they know, are born of creative thinking—intuition, connections between ideas, and leaps into the unexpected. While analytical tools are essential for understanding competitive landscapes and resource deployment, they do not help break with conventional thinking. To generate groundbreaking strategies, strategists need tools explicitly designed to foster creativity, helping them move beyond “close at hand” insights into “cognitively distant” territory.

Contrast: Challenging Conventional Wisdom

To build a strategy based on contrast, one must first identify and challenge the implicit assumptions undergirding the company’s or industry’s status quo. Elon Musk excels at this, disproving the assumption that online money transfer was unsafe between individuals with PayPal, and challenging fixed schedules, public funding, and one-time rockets in space travel with SpaceX, aiming for a privately funded, on-demand, reusable rocket business. In the video rental industry of 2000, Blockbuster’s assumptions (physical locations, limited new video inventory, late fees) were challenged by Netflix, which introduced mail-order, revenue-sharing with studios (allowing more movies and no late fees), and later, streaming. This approach can also involve flipping the order of activities (e.g., pop-up stores before flagship stores) or inverting the value chain (e.g., DonorsChoose.org treating donors as customers). Unbundling highly bundled, expensive products or services is another effective contrast strategy, particularly facilitated by the internet across industries like music, TV, and education. To begin, precisely identify underlying assumptions, think about gains from proving them false, and deliberately disturb work patterns to break ingrained habits. Be aware that organizations resist change because assumptions are embedded in processes.

Combination: Connecting Traditionally Separate Elements

Combination is a canonical creative approach in both arts and sciences, as seen in Einstein’s theory of general relativity by combining an elevator ride and space travel. In business, successful moves result from linking products or services that seem independent or in tension. Opportunities often arise with complementary products and services. For instance, WeChat Pay (part of Tencent’s social media platform) integrated a mobile payment platform into social networks, allowing users to buy and sell directly. Even competitors can join forces to grow the pie, as BMW and Daimler announced plans to combine mobility services like car sharing and ride hailing to counter players like Uber. Apple and Nike combined offerings with the Nike+ iPod Sport Kit (2006) and later integrated the Nike+ Run Club app into Apple Watch. Nest Labs and Amazon complement each other, with Nest’s thermostat gaining value from Alexa voice control. New technologies like AI and blockchain combine for privacy in healthcare data, and blockchain and IoT for secure data in supply chains and smart homes with automated insurance. The biggest combination today is between humans and machines, allowing algorithms to handle calibrated adjustments, freeing humans for higher-level creative objectives. To begin, form diverse groups to brainstorm new combinations and look for ways to coordinate with complementary product providers, even competitors. Be aware that combinations require system-level thinking and measurements, not just individual product profit focus.

Constraint: Turning Limitations into Opportunities

The idea that constraints can spark creative strategies may seem paradoxical, but it has a long history, from Mary Wollstonecraft Shelley writing Frankenstein during a stormy summer to artists working within specific mediums. While lifting constraints can offer more possibilities, a constraint may prompt an entirely new line of thinking. The Goldilocks principle applies: too many constraints choke possibilities, while too few provide insufficient direction. Tesla, lacking a traditional dealership network, turned this limitation into an advantage by selling cars online and through Apple-like stores with salaried salespeople, avoiding conflicts of interest and gaining direct pricing control over traditional dealers. This approach contrasts sharply with SWOT analysis, which aims to mitigate weaknesses; instead, it looks to turn weaknesses into strengths. An apparent strength can also become a weakness over time, as large retail footprints with on-site inventory become liabilities with the rise of “guideshops” (e.g., Bonobos), where items are tried on and shipped later. Self-imposed constraints can also spur innovation, like Noma’s adherence to the New Nordic Food manifesto or Audi’s successful Le Mans strategy focusing on diesel power (fewer fuel stops) when it couldn’t go faster. To begin, list your organization’s “incompetencies” and test if they can become strengths, or deliberately impose constraints to encourage new thinking. Be aware that successful businesses may see no need to explore new constraints.

Context: Learning from Far-Flung Ideas and Disciplines

Context switching involves looking at how a problem similar to yours was solved in an entirely different context and importing the solution. Biomimetics, for example, finds engineering solutions in nature (e.g., burdock plant burrs inspiring Velcro). Intel famously applied the “branded ingredient” concept (seen with Teflon and NutraSweet) to its microprocessors with the Intel Inside logo in the early 1990s, successfully branding an invisible computer component to drive PC industry adoption. Context switching can also occur across time, as seen with the development of the graphical user interface (GUI) by thinking about how young children interact visually, or AI researchers studying how children learn to inform machine learning. Companies are always eager to see into the future, and lead-user and extreme-user innovation strategies shift attention to customers designing their own versions or using products in demanding environments to signal future mainstream trends (e.g., extreme sports driving innovations later adopted by big manufacturers). Locating R&D functions far from headquarters or establishing hardware accelerators like HAX in Shenzhen also demonstrates the importance of immersing in different contexts for rapid learning and growth, allowing teams to quadruple iteration rates by tapping into high-speed ecosystems. To begin, explain your business to an outsider in another industry to gain fresh perspectives, and engage with lead users, extreme users, and innovation hotspots. Be aware that the pressure to focus internally can hinder learning from different contexts.

Put Purpose at the Core of Your Strategy by Thomas W. Malnight, Ivy Buche, and Charles Dhanaraj

This chapter highlights that while common growth strategies are effective, purpose is an overlooked and critical driver of sustained profitable growth. Based on a global study of high-growth companies, the authors argue that the most successful firms move purpose from the periphery of their strategy to its core, using it to redefine their playing field and reshape their value proposition. This approach not only generates economic value but also deepens stakeholder ties, ensures relevance in a changing world, and helps unify and motivate organizations.

Purpose as a Critical Growth Driver

Traditionally, companies pursue high growth through strategies like creating new markets, serving broader stakeholder needs, and changing the rules of the game. However, a global study of companies with average compound annual growth rates of 30% or more over five years revealed a crucial, often overlooked, fourth driver: purpose. While purpose is often considered an add-on for corporate responsibility or employee morale, the most successful companies embed it at the core of their strategy. With committed leadership and financial investment, this purpose-driven approach generates sustained profitable growth, maintains relevance in a rapidly changing world, and deepens ties with stakeholders.

Role 1: Redefining the Playing Field with Purpose

Low-growth companies typically fight for market share on a single, predefined playing field, leading to high-cost battles and commoditization. High-growth companies, in contrast, use purpose to redefine their playing field by thinking in terms of whole ecosystems. This creates more opportunities by connecting interests and relationships among multiple stakeholders. For instance, Nestlé Purina PetCare remains focused on pet food, but Mars Petcare, guided by its purpose “A better world for pets,” has expanded into the broader pet health ecosystem. Starting with the acquisition of Banfield Pet Hospital in 2007, Mars Petcare acquired BluePearl (2015) and VCA (2017), then entered the European veterinary market (AniCura, Linnaeus in 2018). This transformed Mars Petcare into Mars Inc.’s largest and fastest-growing division, shifting its orientation from products to services and building new core competencies and organizational structures. Similarly, Neste, a Finnish oil-refining firm, struggled until it adopted the purpose of “Creating responsible choices every day” in 2009. This led to a bold, seven-year transformation into the world’s largest producer of renewable fuels from waste and residues, with renewables surpassing oil-products profits by 2016.

Role 2: Reshaping the Value Proposition with Purpose

When faced with eroding margins and commoditization, companies often try to enhance value propositions through product or business model innovation. While this yields quick wins, a purpose-driven approach broadens the mission, creates a holistic value proposition, and delivers lifetime benefits to customers by facilitating growth in new ecosystems. This shift can happen in three main ways:

1. Responding to Trends: Securitas AB, a security company, traditionally offered physical guarding. Recognizing how globalization and technology were changing risk, CEO Alf Göransson shifted the value proposition from “simply selling man-hours” to electronic security and predictive security solutions. This involved acquiring companies, modernizing back-office systems, and training guards in digital reporting, allowing Securitas to offer bundled, customized security solutions (physical, electronic, risk management) at optimized cost. By 2018, sales of security solutions and electronic security increased from 6% to 20% of total revenue, strengthening client relationships and increasing margins.
2. Building on Trust: Mahindra Finance, the financial services arm of a $20 billion Indian conglomerate, was guided by its parent company’s purpose, “Rise,” to improve customers’ lives. It targeted vehicle financing in rural, underserved, unbanked areas, developing new methods to assess creditworthiness without traditional documentation. After establishing trust, it expanded its value proposition to offer insurance (tractor, life, health) and then customized home loans at intermediate rates (around 14% vs. 10% bank, 40% moneylender), helping rural customers “rise above their circumstances.” This led to further expansion into small-to-medium enterprise finance and asset management, making Mahindra Finance India’s largest rural nonbanking financial company, serving 50% of villages and 6 million customers.
3. Focusing on Pain Points: Mars Petcare sought to create a “seamless, convenient, and attractive experience” for pet owners. It invested in technology to prevent health problems, acquiring Whistle, a maker of connected collars for activity monitoring. Teaming with its Banfield Pet Hospital unit, it launched the Pet Insight Project, a three-year longitudinal study of 200,000 dogs in the U.S., combining machine learning and veterinary expertise. This aims to understand how behavior signals pet health changes and how owners can partner with vets for individualized diagnostics and treatments, addressing a key pet owner pain point.

Developing a Purpose: Retrospective vs. Prospective Approaches

Companies effectively defining corporate purpose typically use one of two approaches:

1. Retrospective Approach: This builds on a firm’s existing reason for being, looking back to codify organizational and cultural DNA. The focus is internal: “Where have we come from? What makes us unique? Where do our values open future opportunities?” Anand Mahindra successfully used this at the Mahindra Group, reviewing his 30 years as leader, surveying managers, and conducting ethnographic research in seven countries. This three-year process led to “Rise,” which he felt the company was “already living and operating this way.”
2. Prospective Approach: This reshapes a firm’s reason for being by looking forward, taking stock of the broader ecosystem, and assessing potential impact. The focus is external: “Where can we go? Which trends affect us? What new needs and challenges lie ahead? What role can we play to open future opportunities?” This approach is especially useful for new CEOs. In 2018, Magnus Ahlqvist at Securitas spearheaded a “purpose workstream,” running “listening workshops” across business units for six months. Employee input revealed a vision of transforming the company from service provider to trusted adviser through predictive security, helping refine this strategy.

Implementing a Purpose-Driven Strategy

A compelling purpose clarifies what a company stands for, provides impetus for action, and is aspirational, but it must be properly translated into action to avoid being mere “nice-sounding words on a wall.” The two best tactics are to transform the leadership agenda and to disseminate purpose throughout the organization. Mars Petcare President Poul Weihrauch (2015) altered his leadership team’s agenda to focus on “multiplier effects” between businesses and contributions to “a better world for pets.” This led to an “outside-in” approach, launching Leap Venture Studio (a business accelerator) and Companion Fund (a $100 million VC fund) to partner with pet care start-ups. Neste, a public company, faced an uphill battle when moving into renewables. It put in place a new top management team, mobilized 1,500 R&D engineers, innovated patented technology, and invested €2 billion in new refineries. It also engineered a major reorganization to a matrix structure, rotating 25% of senior managers and 50% of upper professionals into new cross-functional roles, with targets and incentives designed to build capabilities across businesses. Purpose helped employees understand the “why,” “what,” and “how” of this transformation, leading Neste to become a leader in renewables and be ranked second on Forbes’s Global 100 list of most-sustainable companies in 2018.

Benefits of Purpose on the Soft Side of Management

Embedding purpose at the core of strategy also yields significant benefits for the “soft side” of management—people-related aspects that often undo leaders:

1. Unifying the Organization: When companies pursue dramatic change and move into larger ecosystems (e.g., Mars Petcare, Securitas), purpose helps employees understand the “whys” and get on board with the new direction, reducing the unsettling effects.
2. Motivating Stakeholders: In an era of pervasive distrust (Edelman trust barometer), employees (especially Millennials) seek organizations that contribute to a higher cause. Customers, suppliers, and other stakeholders are more likely to trust and interact with a purpose-driven company.
3. Broadening Impact: Purpose clarifies a company’s reason for being, its value contribution, and each unit’s role within the organization and society. This focus on collective objectives opens up more opportunities for growth and profitability, while contributing positively to society as a whole.

This approach to purpose must be constant and adaptable, with leaders continually assessing how purpose guides strategy and willing to adjust or redefine it as conditions change. This sustained focus confers immense advantages.

Creating Shared Value by Michael E. Porter and Mark R. Kramer

This chapter introduces the concept of “shared value,” advocating for a new approach to capitalism where economic success is created in a way that simultaneously creates value for society by addressing its needs and challenges. It critiques the outdated view of value creation that treats societal benefits as costs, arguing instead that social harms often create internal costs for firms and that addressing them through innovation can enhance productivity and expand markets. The authors detail three key ways companies can create shared value: reconceiving products and markets, redefining productivity in the value chain, and enabling local cluster development.

The Crisis of Capitalism and the Rise of Shared Value

The capitalist system is under siege, widely perceived as a cause of social, environmental, and economic problems, with its legitimacy at historic lows. This is partly due to an outdated approach to value creation that narrowly optimizes short-term financial performance, ignoring crucial customer needs and broader influences on long-term success (e.g., natural resource depletion, supplier viability, community distress). Corporate responsibility programs have largely emerged as a reactive, reputation-focused expense, rather than an integral part of business. The solution lies in shared value: creating economic value in a way that also creates value for society by addressing its needs and challenges. This is not philanthropy or sustainability, but a new way to achieve economic success, integral to a company’s core strategy. Companies like GE, Google, IBM, Intel, Johnson & Johnson, Nestlé, Unilever, and Walmart are already embarking on shared value initiatives, marking what could be the next major transformation of business thinking. Capitalism’s purpose must be redefined as creating shared value, not just profit per se, to drive innovation and productivity and legitimize business again.

Moving Beyond Trade-Offs: The Shared Value Perspective

For too long, business and society have been pitted against each other, with economists legitimizing the idea that societal benefits inevitably raise costs and reduce profits. This view includes the concept of externalities (social costs firms don’t bear, like pollution), leading to taxes and regulations to “internalize” them. This perspective has led firms to largely exclude social considerations from economic thinking, resisting regulation and ceding social problem-solving to governments and NGOs. The concept of shared value, in contrast, recognizes that societal needs define markets and that social harms or weaknesses frequently create internal costs for firms (e.g., wasted energy, costly accidents, remedial training). Addressing these issues does not necessarily raise costs; instead, it can drive innovation, increase productivity, and expand markets. Shared value is not about personal values or redistributing existing value but about expanding the total pool of economic and social value. For instance, a shared value perspective on cocoa farming focuses on improving techniques and strengthening local clusters to increase farmers’ efficiency, yields, and product quality, potentially raising incomes by over 300%, compared to fair trade’s 10-20% through redistribution.

The Roots of Shared Value and Strategic Thinking

At its core, company competitiveness and community health are closely intertwined. Businesses need successful communities for demand, public assets, and a supportive environment, while communities need successful businesses for jobs and wealth. The old, narrow view of capitalism saw profit-making as the sufficient social benefit, with social issues outside the firm’s scope (as argued by Milton Friedman). This led to firms focusing on enticing consumption, waves of restructuring, and offshoring, resulting in commoditization, price competition, and slow organic growth. Communities felt profits came at their expense. This perspective also overlooked the profound effect of location on productivity and innovation. Companies became disconnected from their “home” communities. Strategy theory emphasizes creating a distinctive value proposition and configuring the value chain. Shared value builds on this by recognizing opportunities to meet fundamental societal needs and understanding how societal harms affect value chains. The field of vision has been too narrow, missing the importance of the broader business environment.

How Shared Value Is Created: Three Avenues

Companies can create economic value by creating societal value through three distinct, mutually reinforcing ways:

1. Reconceiving Products and Markets: Society’s needs (health, housing, nutrition, environment) represent the greatest unmet needs in the global economy. Companies have focused on manufacturing demand while missing this crucial demand. In advanced economies, demand for products meeting societal needs is growing rapidly (e.g., food companies refocusing on nutrition, Intel/IBM on energy efficiency, Wells Fargo on financial security, GE’s Ecomagination reaching $18 billion in sales by 2009). Serving disadvantaged communities and developing countries offers even greater opportunities, as these are often overlooked but viable markets (e.g., Vodafone’s M-PESA mobile banking service in Kenya signing 10 million customers in three years, handling 11% of Kenya’s GDP; Thomson Reuters providing agricultural advice to 2 million Indian farmers, increasing incomes by over 60%). Microfinance, initially for developing countries, is now growing in the U.S. Identifying societal needs leads to new opportunities for differentiation, repositioning, and recognizing overlooked markets.
2. Redefining Productivity in the Value Chain: A company’s value chain affects and is affected by societal issues (resource use, health, safety, working conditions). Societal problems often create internal economic costs. For example, excess packaging and greenhouse gases are costly to business, not just the environment. Walmart saved $200 million in 2009 by reducing packaging and rerouting trucks to cut 100 million miles. Improvements in environmental performance can yield net cost savings through enhanced resource utilization and process efficiency. This new thinking reveals greater congruence between societal progress and value chain productivity.
   • Energy Use and Logistics: Reexamining energy use in all value chain parts (processes, transportation, supply chains) has led to striking improvements and shared value (e.g., Marks & Spencer’s supply chain overhaul to save £175 million annually by 2016 while cutting emissions).
   • Resource Use: Heightened environmental awareness drives new approaches to water, raw materials, packaging, recycling, and reuse, creating shared value (e.g., Coca-Cola reducing water consumption by 9% since 2004; Dow Chemical saving $4 million by reducing freshwater use by 1 billion gallons; Jain Irrigation achieving 41% CAGR with water-saving drip irrigation systems).
   • Procurement: Moving beyond commoditizing suppliers, some companies now improve supplier quality and productivity by increasing access to inputs, sharing technology, and providing financing. Nestlé’s Nespresso worked intensively with coffee growers in impoverished rural areas, providing farming advice, guaranteeing loans, and establishing local quality measurement to pay premiums for better beans, increasing growers’ incomes and ensuring reliable high-quality supply. Olam International cut processing and shipping costs by 25% by opening local processing plants in Africa, employing 17,000 direct (95% women) and an equal number indirect in rural areas.
   • Distribution: New profitable distribution models can dramatically reduce environmental impact (e.g., iTunes, Kindle, Google Scholar reducing paper) or serve underserved markets (e.g., Hindustan Unilever’s Project Shakti using underprivileged female entrepreneurs for direct-to-home distribution in 100,000 Indian villages, accounting for 5% of Unilever’s India revenues).
   • Employee Productivity: Focusing on living wages, safety, wellness, training, and advancement opportunities can positively affect productivity. Johnson & Johnson saved $250 million on health care costs (a $2.71 return for every $1 spent) from 2002-2008 by helping employees quit smoking and implementing wellness programs, benefiting from a more productive workforce.
   • Location: The myth that location no longer matters is being challenged. Walmart is increasingly sourcing produce from local farms near warehouses, saving on transportation and enabling smaller, more frequent restocking. Nestlé is establishing smaller plants closer to markets. These trends can lead companies to remake value chains and create shared value by rooting deeper in communities.
3. Enabling Local Cluster Development: No company is self-contained; its success is affected by supporting companies and infrastructure (clusters)—geographic concentrations of firms, related businesses, suppliers, service providers, and logistical infrastructure (e.g., IT in Silicon Valley, cut flowers in Kenya). Clusters also include institutions (academic programs, trade associations) and public assets (schools, clean water). Deficiencies in framework conditions surrounding a cluster create internal costs for firms (e.g., poor education means remedial training, poor transport means higher logistics costs). Firms create shared value by building clusters to improve company productivity while addressing gaps or failures in these framework conditions. This can involve developing or attracting capable suppliers, forming open and transparent markets to reduce exploitation, and amplifying multiplier effects through local job creation. Nestlé’s Nespresso worked to build agricultural, technical, financial, and logistical capabilities in coffee regions, partnering with the Rainforest Alliance. Yara, a fertilizer company, invested $60 million to improve ports and roads to create agricultural growth corridors in Mozambique and Tanzania, benefiting 200,000 small farmers and creating 350,000 new jobs. North Carolina’s Research Triangle is a notable example of shared value created by public and private collaboration in IT and life sciences clusters. Government regulation can encourage shared value by setting clear, measurable social goals and performance standards without prescribing methods, and by investing in universal measurement systems.

Creating Shared Value in Practice and the Next Evolution in Capitalism

Not all profit is equal. Profits from social purpose represent a higher form of capitalism, advancing society while allowing companies to grow. Creating shared value (CSV) presumes compliance with law and ethics but goes far beyond. It is more effective and sustainable than most CSR efforts because it is integral to profitability and competitive position. The most fertile opportunities are closely related to a company’s particular business, where it can exert the most economic benefit and have meaningful societal impact. Many pioneers have been social entrepreneurs and companies in developing countries, blurring the distinction between for-profits and nonprofits. CSV is defining a whole new set of best practices for all companies and will become an integral part of strategy by opening new needs, products, customers, and value chain configurations. These opportunities are widespread and growing, as seen in GE’s Ecomagination initiatives.

CSV will require concrete, tailored metrics for each business unit, linking social impacts to economic interests. It will involve new and heightened forms of collaboration across profit/nonprofit and private/public boundaries, even among major competitors on precompetitive framework conditions. Governments and NGOs can enable or work against shared value; effective regulation sets goals and stimulates innovation rather than mandating practices, and provides infrastructure for reliable data collection.

Shared value holds the key to unlocking the next wave of business innovation and growth, reconnecting company and community success. It focuses companies on “the right kind of profits”—those that create societal benefits. This expanded view recognizes new and better ways to develop products, serve markets, and build productive enterprises, representing a more sophisticated form of capitalism imbued with social purpose. This purpose arises not from charity but from a deeper understanding of competition and economic value creation, representing a broader conception of Adam Smith’s “invisible hand.” Business schools must broaden their curricula to teach this new understanding of markets, competition, and management, moving beyond narrow views of capitalism.

About the Contributors

This section provides brief biographical details for each author featured in HBR’s 10 Must Reads on Strategy, Vol. 2. It highlights their affiliations, key publications, and areas of expertise, underscoring their contributions to the fields of strategy, innovation, risk management, and organizational development.

Chris Zook and James Allen

Chris Zook is a senior partner at Bain & Company’s Boston office and has been a cohead of the firm’s global strategy practice for twenty years. He is a coauthor of best-selling books including Profit from the Core (2010) and The Founder’s Mentality: How to Overcome the Predictable Crises of Growth (2016), focusing on strategy and corporate growth.

James Allen is a partner in Bain & Company’s London office and a cohead of the firm’s global strategy practice. He also leads Bain’s Founder’s Mentality 100 initiative and is a coauthor of Profit from the Core (2010) and The Founder’s Mentality (2016), contributing to insights on repeatable business models and sustained performance.

Steve Blank

Steve Blank is an adjunct professor at Stanford University, a senior fellow at Columbia University, and a lecturer at the University of California, Berkeley. He has been a cofounder or early employee at eight high-tech startups and helped start the National Science Foundation Innovation Corps and the Hacking for Defense and Hacking for Diplomacy programs. He is recognized as a pioneer of the Lean Startup movement, blogging at http://www.steveblank.com.

Adam Brandenburger

Adam Brandenburger holds positions as the J. P. Valles Professor at the Stern School of Business, Distinguished Professor at the Tandon School of Engineering, and faculty director of the Program on Creativity and Innovation at NYU Shanghai, all at New York University. His work focuses on the intersection of strategy and creativity, including his academic paper “Where Do Great Strategies Really Come From?” (Strategy Science, 2017).

Ivy Buche and Thomas W. Malnight, Charles Dhanaraj

Ivy Buche is an associate director of the Business Transformation Initiative at IMD.

Thomas W. Malnight is a professor of strategy and the faculty director of the Business Transformation Initiative at IMD in Lausanne, Switzerland. He is a coauthor of Ready? The 3Rs of Preparing Your Organization for the Future, specializing in strategic transformation and organizational readiness.

Charles Dhanaraj is the H. F. Gerry Lenfest Professor of Strategy at Temple University’s Fox School of Business, where he is also the founding executive director of the Translational Research Center. He contributes expertise on strategy, growth, and purpose-driven business models.

Sangeet Paul Choudary, Marshall W. Van Alstyne, and Geoffrey G. Parker

Sangeet Paul Choudary is a C-level adviser on platform business models, an entrepreneur-in-residence at INSEAD, ranked among the top 30 emerging business thinkers by Thinkers50, and a Young Global Leader by the World Economic Forum. He is a coauthor of Platform Revolution, focusing on the dynamics of platform-based strategies.

Marshall W. Van Alstyne is the Questrom Chaired Professor at Boston University School of Business, with over 10,000 citations for his work. He coauthored Platform Revolution and the October 2006 Harvard Business Review article “Strategies for Two-Sided Markets,” an HBR all-time top 50 best-seller, known for his expertise in information economics and platform strategy.

Geoffrey G. Parker is a professor of engineering at Dartmouth College and a research fellow at MIT’s Initiative on the Digital Economy. He coauthored Platform Revolution and “Strategies for Two-Sided Markets,” contributing to the understanding of multisided markets and digital platforms.

Clayton M. Christensen and Maxwell Wessel

Clayton M. Christensen (deceased) was the Kim B. Clark Professor of Business Administration at Harvard Business School and a coauthor of The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty. He was widely recognized for his groundbreaking work on disruptive innovation theory.

Maxwell Wessel is the general manager of SAP.iO, a lecturer at Stanford’s Graduate School of Business, and an investor with Nextgen Venture Partners. He contributes expertise on disruptive innovation and entrepreneurial ecosystems.

Robert S. Kaplan and Anette Mikes

Robert S. Kaplan is a senior fellow and the Marvin Bower Professor of Leadership Development, Emeritus, at Harvard Business School. He is a coauthor, with Michael E. Porter, of “How to Solve the Cost Crisis in Health Care” (HBR, 2011), known for his work on strategic performance measurement and risk management.

Anette Mikes is an assistant professor in the accounting and management unit at Harvard Business School. Her research focuses on organizational risk management and control systems.

A.G. Lafley, Roger L. Martin, Jan W. Rivkin, and Nicolaj Siggelkow

A.G. Lafley is the retired CEO of Procter & Gamble and serves on the board of Snap Inc., bringing extensive practical experience in strategic leadership and brand management.

Roger L. Martin is the director of the Martin Prosperity Institute and a former dean of the Rotman School of Management at the University of Toronto. He is a coauthor of Creating Great Choices: A Leader’s Guide to Integrative Thinking (2017), known for his work on integrative thinking and strategic choice.

Jan W. Rivkin is the Bruce V. Rauner Professor at Harvard Business School. His research includes competitive strategy, particularly how managers choose and adapt strategies.

Nicolaj Siggelkow is a professor of management and strategy at the University of Pennsylvania’s Wharton School and a codirector of the Mack Institute for Innovation Management. He is a coauthor of Connected Strategy (2019), specializing in strategic change and organizational design.

Michael E. Porter and Mark R. Kramer

Michael E. Porter is a university professor at Harvard, based at Harvard Business School in Boston. He is renowned for his theories on competitive strategy, including the Five Forces analysis, and his work on shared value.

Mark R. Kramer is a senior lecturer at Harvard Business School and a cofounder and a managing director of FSG, a global social-impact consulting firm. He collaborates extensively with Michael Porter on the concept of shared value and corporate social responsibility.

Martin Reeves and Philipp Tillmanns

Martin Reeves is a senior partner and managing director in the Boston Consulting Group’s New York office and the director of the BCG Henderson Institute. He is a coauthor of Your Strategy Needs a Strategy (2015), focusing on corporate strategy in dynamic environments.

Philipp Tillmanns is a consultant at Boston Consulting Group in Hamburg and a PhD candidate at RWTH Aachen University in Germany, contributing to research on strategic styles and environmental adaptation.

Key Takeaways: What You Need to Remember

Core Insights from HBR’s 10 Must Reads on Strategy, Vol. 2

Successful strategy today demands adaptability to an unpredictable world, moving beyond static business plans. Match your strategic style to your environment based on its predictability and malleability, choosing from classical, adaptive, shaping, or visionary approaches. Embrace transient competitive advantages by continually launching new initiatives and managing a portfolio of short-lived gains rather than seeking a single sustainable one. Integrate creativity into strategy-making by challenging assumptions, combining disparate ideas, leveraging constraints, and seeking insights from diverse contexts. Implement a robust risk management framework that categorizes risks (preventable, strategy, external) and uses tailored, dialogue-based approaches to counteract cognitive biases. Understand that disruption is a process, not an event; identify the disrupter’s extendable core and your own customer “jobs to be done” to defend vulnerable business segments. Build simple, repeatable business models centered on vivid differentiation, supported by nonnegotiable principles and robust learning systems. Finally, put purpose at the core of your strategy, using it to redefine markets and reshape value propositions for sustained growth and broader societal impact.

Immediate Actions to Take Today

• Assess your current strategic style and determine if it aligns with your industry’s predictability and malleability by using the two-variable matrix.
• Identify your current competitive advantages and honestly evaluate if they are eroding by using the seven self-assessment questions from the Transient Advantage chapter.
• Map out your company’s core differentiators using the Differentiation Map, then ask your top 15 managers to privately identify them to expose any lack of agreement.
• Frame a current business challenge as a choice between two mutually exclusive options to initiate a possibilities-based strategic discussion.
• Conduct a “get out of the building” session to interview potential customers and test your business hypotheses, focusing on gaining immediate feedback.

Questions for Personal Application

• Given your current competitive environment, which strategic style (classical, adaptive, shaping, or visionary) is most appropriate for your primary business unit, and why?
• How can you identify and challenge the core assumptions underlying your current business model to spark a “contrast” strategy?
• What are the “jobs to be done” that your customers “hire” your product or service for, and how effectively does your extendable core perform them compared to potential disruptors?
• What nonnegotiable principles could be articulated and embedded in your organization to reinforce your core differentiation and ensure consistent execution across all levels?
• How can you redefine your company’s purpose to go beyond existing products and markets, allowing you to enter new ecosystems and reshape your value proposition for long-term growth and societal benefit?