Michael Porter's Big Ideas

The chief strategist of an organization has to be the leader -- the CEO. A lot of business thinking has stressed the notion of empowerment, of pushing down and getting a lot of people involved. That's very important, but empowerment and involvement don't apply to the ultimate act of choice. To be successful, an organization must have a very strong leader who's willing to make choices and define the trade-offs. I've found that there's a striking relationship between really good strategies and really strong leaders.

That doesn't mean that leaders have to invent strategy. At some point in every organization, there has to be a fundamental act of creativity where someone divines the new activity that no one else is doing. Some leaders are really good at that, but that ability is not universal. The more critical job for a leader is to provide the discipline and the glue that keep such a unique position sustained over time.

Another way to look at it is that the leader has to be the guardian of trade-offs. In any organization, thousands of ideas pour in every day -- from employees with suggestions, from customers asking for things, from suppliers trying to sell things. There's all this input, and 99% of it is inconsistent with the organization's strategy.

Great leaders are able to enforce the trade-offs: "Yes, it would be great if we could offer meals on Southwest Airlines, but if we did that, it wouldn't fit our low-cost strategy. Plus, it would make us look like United, and United is just as good as we are at serving meals." At the same time, great leaders understand that there's nothing rigid or passive about strategy -- it's something that a company is continually getting better at -- so they can create a sense of urgency and progress while adhering to a clear and very sustained direction.

A leader also has to make sure that everyone understands the strategy. Strategy used to be thought of as some mystical vision that only the people at the top understood. But that violated the most fundamental purpose of a strategy, which is to inform each of the many thousands of things that get done in an organization every day, and to make sure that those things are all aligned in the same basic direction.

If people in the organization don't understand how a company is supposed to be different, how it creates value compared to its rivals, then how can they possibly make all of the myriad choices they have to make? Every salesman has to know the strategy -- otherwise, he won't know who to call on. Every engineer has to understand it, or she won't know what to build.

The best CEOs I know are teachers, and at the core of what they teach is strategy. They go out to employees, to suppliers, and to customers, and they repeat, "This is what we stand for, this is what we stand for." So everyone understands it. This is what leaders do. In great companies, strategy becomes a cause. That's because a strategy is about being different. So if you have a really great strategy, people are fired up: "We're not just another airline. We're bringing something new to the world."

Keith H. Hammonds (khammonds@fastcompany.com) is a Fast Company senior editor based in New York. Contact Michael Porter by email (mporter@hbs.edu).