Harvard Business School has made an excerpt available of Eric Beinhocker’s fantastic new book The Origin of Wealth. In the excerpt, Beinhocker admonishes managers to harness the power of evolutionary search by thinking of corporate strategy not as a single silver bullet, but rather as a portfolio of experiments undertaken to determine the help find the most promising strategic areas to stake out in a complex and shifting landscape. This collection of strategies should be diverse in scale, scope, and orientation, and over time some will show signs of failure, while others will hopefully show signs of success. As this process takes place, the failed strategies can be culled, and further resources can be shifted to those which are showing signs of success. To illustrate the process, he provides this history of strategy experiments undertaken at Microsoft in its early years:

The key to doing better is to “bring evolution inside” and get the wheels of differentiation, selection, and amplification spinning within a company’s four walls. Rather than thinking of strategy as a single plan built on predictions of the future, we should think of strategy as a portfolio of experiments, a population of competing Business Plans that evolves over time.35 We will look at the elements of such an approach shortly, but first, an example will help illustrate what a portfolio of strategic experiments looks like.

Let’s return to the Microsoft story and imagine it is now the year 1987, six years after Gates signed the contract with IBM. The still nascent PC industry has just gone through a period of explosive growth.36 No one has ridden that growth harder than Microsoft. But MS-DOS is now coming to the end of its natural life cycle. Customers are beginning to look for a replacement operating system that will take better advantage of the graphics and greater power of the new generation of machines. A change in the S-curve is coming, and the industry is far from certain how things will work out. Despite its success, Microsoft was still a $346 million minnow in 1987 compared to the multibillion-dollar giants hungrily eyeing its lucrative position. IBM was developing its own powerful multitasking OS/2 system; AT&T was leading a consortium of other companies, including Sun Microsystems and Xerox, to create a user-friendly version of the widely admired Unix operating system; and Hewlett-Packard and Digital Equipment Corporation were pushing their own version of Unix. Apple was also still a threat, consistently out-innovating the rest of the industry, and its highly graphical Macintosh was selling well.

We can imagine the options that Microsoft faced at this point. Option one: Gates could make an enormous “bet the company” gamble by investing in building a new operating system called Windows and attempt to migrate his base of DOS users to the new standard, ideally before a competitor would reach critical mass with its own system. Option two: He could exit the operating-system part of the market, cede that to his larger, better-funded competitors, and instead focus on applications for which Microsoft’s small size and nimbleness might be more of an advantage. Or, option three: He could sell the company or otherwise team up with one of his major competitors. While Microsoft would lose its independence with option three, such a move would probably tip the balance of power in favor of whichever company he chose to partner with.

All these options would involve big commitments to hard-to-reverse courses of action and involve major risks. The conventional wisdom is that Gates chose option one, and the big bet paid off, enabling Microsoft to continue its dominance of desktop operating systems and spend the next decade fighting antitrust regulators. But that is not actually what happened. What Gates and his team did was much more interesting—they simultaneously pursued six strategic experiments.

First, Microsoft continued to invest in MS-DOS. Although everyone was predicting the operating system’s demise, it still had an enormous customer base. Many customers were very cautious about switching, and each version of DOS was incrementally more powerful than the last. There was still some chance that DOS would continue to morph and evolve and provide what customers wanted for some time.

Second, Microsoft saw IBM as a real threat. Big Blue was still a power house on the hardware side in 1987 and wanted to regain control of the operating-system market. But IBM also knew it would be risky to go it alone. As Michael Corleone said in The Godfather, Part II, “Keep your friends close, but your enemies closer.” Gates and IBM agreed to turn IBM’s OS/2 operating-system project into a joint venture.

Third, Microsoft saw Unix as a lesser threat than IBM, but a threat nonetheless. Microsoft held discussions with various companies, including AT&T, about participating in joint efforts on Unix. The discussions kept Microsoft’s options open and the company plugged into what was going on, but also fueled speculation about Microsoft’s Unix strategy. This had the benefit of creating additional uncertainty for the Unix advocates and slowing their progress.

Fourth, in addition to playing the Unix alliance game, Microsoft bought a major stake in the largest seller of Unix systems on PCs, a company called the Santa Cruz Operation. Thus, if Unix did take off, Microsoft would at least have a product of its own in the market.

Fifth, Gates did not pull back on investing in applications, but continued to build that business at the same time, despite the strain on resources. In particular, Microsoft built its position in software for the Apple Macintosh, passing Apple itself, as the leading supplier. This provided a hedge in case Apple capitalized on the discontinuity in the market to push its own operating system ahead.

Sixth and finally, Gates made major investments in Windows. Windows was intended to be the best of all worlds. It was built on DOS and backward-compatible with DOS applications, it was multitasking like OS/2 and Unix, and it was easy to use like the Macintosh. But most importantly, it would keep control of the PC operating-system market firmly in Microsoft’s hands. Success with Windows was clearly the company’s most preferred outcome.

What Gates created was not a focused big bet, but a portfolio of strategic options. One way of interpreting what Gates did was that he set a high-level aspiration—to be the leading PC software company—and then he created a portfolio of strategic experiments that had the possibility of evolving toward that aspiration.

It is important to remember that in 1987, Windows was far from a certain winner. Version 1.0 was launched in 1985 but sold very poorly, and Version 2.0, launched in 1987, was plagued with technical problems and delays. It wasn’t until Version 3.0 appeared in 1990 that Microsoft’s future lock on the operating-system market was assured. Annie’s hand could have twitched in another direction; if IBM had been a bit faster with OS/2, if the Unix companies had gotten their act together, or if Microsoft had suffered further glitches with Windows, history could potentially have taken a very different branch.

Rather than try to predict the future, Gates created a population of competing Business Plans within Microsoft that mirrored the evolutionary competition going on outside in the marketplace. Microsoft thus was able to evolve its way into the future. Eventually, each of the other initiatives was killed off or scaled down, and Windows was amplified to become the focus of the company’s operating-system efforts. At the time, Gates was heavily criticized for this portfolio approach. Journalists cried that Microsoft had no strategy and was confused and adrift; they wondered when Gates was going to make up his mind. Likewise, it was difficult for those working inside the company to find themselves competing directly with their colleagues down the hall. There is no evidence that Bill Gates looked to evolutionary theory or was thinking about fitness landscapes when designing this strategy. Yet, regardless of how the approach was specifically developed, the effect was to create an adaptive strategy that was robust against the twists and turns of potential history. Microsoft has continued this approach and today has a portfolio of competing experiments in areas ranging from the Web to corporate computing, home entertainment, and mobile devices.

There are some general lessons that can be learned from a portfolio-of-experiments approach to strategy. First, management needs to create a context for strategy. Constructing a portfolio of experiments requires a collective understanding of the current situation and shared aspirations among the management team. Second, management needs a process for differentiating Business Plans that results in a portfolio of diverse Plans. Third, the organization needs to create a selection environment that mirrors the environment in the market. Fourth and finally, processes need to be established that enable the amplification of successful Business Plans and the elimination of unsuccessful Plans.

Read more: Creating Strategy in an Unknowable Universe

Buy the book: The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics, by Eric D. Beinhocker