Introducing Strategic Thinking into Operations? Five Themes to Emphasize

HROStrategic thinking competency is essential for assuring the long-term success. Its complement is operational thinking, which is thinking that is concerned with productivity, process, and error-free work. Although they are complements, there is often conflict as the short-term goals of production leave little room for new realities from the external world and for holistic, long-term, thinking.

“High Reliability Organizations (HRO)”*  are organizations that operate reliably. They have five characteristics: preoccupation with failure, reluctance to simplify operations, sensitivity to operations, commitment to resilience, and deference to expertise. I suggest that we adopt those five values as a way to open the door to strategic thinking.

Preoccupation with failure. For a manufacturing plant manager, failure might be with a machine breaking down or a fire in a warehouse. For a sales manager, failure might be the loss of a client or sale. Like death, people often avoid discussing risk and failure in their discourse. The HRO culture recognizes that failure is both frequent, understandable, and often predictable. Often the margin between a near miss and an accident is small. Thus, a HRO is capable in risk management practices: it senses and responds to near misses and weak signals as opportunities for learning.

Strategic thinkers enlarge the discussion to enterprise failure and nudge the timeline out from the day-to-day. History shows that disruption is frequent. Failure is more common than most people recognize.

Reluctance to over-simplify operations. All people like simplicity, but often over-simplification leads to poor decisions. HRO’s don’t depend on simple rules of thumb. They challenge the assumptions, and accept change as a constant. Note this quote (attributed to Oliver Wendell Holmes, Sr.),

“I wouldn’t give a fig for the simplicity on this side of complexity; I would give my right arm for the simplicity on the far side of complexity.”

Strategic thinkers look for that simplicity on the far side of complexity. They do this by developing a nuanced understanding of the organization, especially the numerous interfaces with the external environment. HROs are willing to err on the complexity because small errors cascade and magnify into greater problems.

This means that managers should be aware of their own assumptions and challenge them. They should see data from the organization.

Sensitivity to disorder. Economies and societies are densely interconnected and a small issue in one area can cascade and spiral into threats or opportunities elsewhere.

Strategic thinkers don’t try to contain and rule disorder, because that often causes other problems to crop up, Whack-A-Mole style. Instead, ambiguity is seen as a field of weak signals that might present an opportunity or might be a signal of trouble.

Commitment to resilience. A HRO knows that mistakes and the unexpected are inevitable. Conventional thinkers try to avoid making mistakes. HROs take it a step further, and make sure that they can absorb a setback, learn from it, and strengthen the organization.

The similar concept for strategy is that of agility and adaptability. Strategic plans are bunk, and the idea of predictability is a tired, antiquated operational thinking concept.

Instead, you need to take the small pockets of the future as signals for learning. You should work on reconfigurations that are flexible and adaptable.

Deference to expertise. The question that drives reliability is, “Who has the best view of reality?” It is a more helpful question than “Who has the most experience with solutions?” This is a subtle-but-important point, as operational thinkers often confuse experience with expertise. Routine exposure to a system often leads to an intuitive feel for the system, but most system failures involve unexpected, novel failures. Further, those failures tend to occur at the interface with other systems. Catastrophic failures tend to occur through a chain-link series of failures.

A HRO does not give the “say” to the most experienced person, because much experience is simply repetitive. Instead, it says that some people know more about the situation because they have detached from the situation to understand the essential principles in action. They have a more specific understanding of reality.

How do you recognize expertise? Here are some ideas:

  • Start with people who have expertise in their field. As those experts who they know and believe to have knowledge relevant to the situation. This is a wisdom-of-crowds approach, where you are selecting the wisdom of other experts.
  • Look for the presence of diagnostic skills. Do they ask questions? Do they explicitly consider what they don’t know?
  • Rather than “thinking outside the box,” do they have the courage to look deeply into different boxes?
  • Can they emotionally detach from the problem? Can they imagine the perspective of a totally different stakeholder?

Conclusion

We don’t want to eliminate operational thinking, we want to balance it with strategic thinking. Operational thinkers are necessary to the success of an organization, but are sometimes hostile to the playful imaginations of strategic thinkers. The idea of emphasizing High Reliability Organizations is consistent with their values: a perfect system is a reliable system.

No operations person can be against reliability. Build a story that says that reliability is enhanced by failure proofing, resilience, expertise, reluctance to oversimplify, and sensitivity to disorder. Make that story a part of the conversations.

The trick is to be subtle with the introduction of novel ideas; through repetition they will seem familiar and become part of the culture. What else do you recommend?

*See, Managing the Unexpected by Wieck & Sutcliffe page 10

Three Diseases of Strategic Thinking

Three Strategic Thinking DiseasesThe most important, critical activity of strategy making is that of diagnosing the situation. A mistake in diagnosis will lead to poor strategy and results. This article describes three shortcomings that get in the way of good strategic diagnosis. I found them in Daniel Kahneman’s closing remarks in his book, Thinking Fast and Slow.

Anchoring – We’ve all experienced anchoring when in bargaining over price. Someone offers a price, and the agreement settles someplace near that price. Anchoring is common in establishing project due dates and budgets; those initial anchors may be totally infeasible! The mind gives disproportionate weight to the first information it receives, regardless of the realism of that information.

Here’s an example from earlier in my career. My employer had experienced two very good years of growth, and the prior year our sales were up 35% over the previous year. The CEO entered into a planning meeting and said this, “We grew 35% last year, so our target growth for this year is 35%.” Anchors like this are intuitive, and ignore relevant factors like industry growth rate, competitive responses, and the state of the economy.

Here’s another example. At the time of Wal-Mart’s founding, the conventional wisdom was that a full-line department store needed a population base of at least 100,000. Sam Walton was able to buck this conventional wisdom by redefining the business as a network of stores with an integrated supply chain. Related to conventional wisdom is the concept of a “best practice,” which leads to thoughtless copying of others. Seldom does a good strategy arise from copying the practices of others.

Narrow framing – Humans put boundaries on problems, whether they recognize it or not. When a person frames narrowly, they bring their attention to an isolated part of a situation. When people narrow frame, they tend to look at their own situation fail to appreciate their interactions with others. Narrow framing is the opposite of holding a big picture.

As an example, Kahneman described the experience of his colleague Richard Thaler, who was meeting with a group top managers of 25 divisions of a large company.

He asked them to consider a risky option in which, with equal probabilities, they could lose a large amount of the capital they controlled or earn double that amount. None of the executives was swilling to take such a dangerous gamble. Thaler then turned to the CEO, who was also present, and asked for his opinion. Without hesitation, the CEO answered, “I would like all of them to accept their risks.”

The CEO’s broader frame allowed him to make a decision that implicitly understood that the gains would cancel out the losses and shareholders would do better. The division managers naturally had a risk-adverse mindset; the problem came when each narrow framed on their own condition instead of elevating their perspective.

Many incumbent organizations have stagnated. This is because localized decisions lead to conservative decisions. Opportunities are missed.

By contrast, competent strategic thinkers are aware of the difference between narrow and broad framing and strive to continually analyzed decisions through risk policy that benefits the whole. Strategy itself can be thought of a centralization of certain policies that create impact across the entire organizational system.

Excessive coherence – The idea that strategy is a plan is another way to say that the various elements of a strategy “make sense.” Coherence is the characteristic of a story that indicates that it “hangs together” in the memory so that it seems natural and logical. Excessive coherence is when a person reads too much into a situation, finding causes and relationships where none exist. Excessive coherence explains the halo effect where jump to conclusion that a particular person has extraordinary powers because of their affiliations or past successes.

Most people are familiar with the concept of groupthink where an entire group convinces themselves of the correctness of a strategy. Group social norms – a kind of social coherence – provides reinforcement to the story.

Overconfidence is one of the biggest flaws in strategic thinking. Excessive coherence, that is, belief in the story, leads to overconfidence.

Instead, competent strategic thinkers look for disconfirming evidence and alternative explanations for those signals that are ignored by others.

What are shortcomings should we be aware of?

Knowing History: A Strength or Weakness of Strategic Thinkers?

Historical ThinkingOne of the most important things we can do to advance strategic thinking is identifying and removing misconceptions. In this article, I want to challenge popular advice: being well read in history develops strategic thinking. I’m defining “well read” as having read and account of the characters and events of history. A well read person can explain what happened and why that specific event happened. Too many people have a superficial knowledge of facts. This results in a mindset, explained by historian Robert Crowley(1):

We are left with the impression that history is inevitable, that what happened could not have happened any other way, and that drama and contingency have no place in the general scheme of human existence.

Superficial knowledge of events and characters is fine for entertainment, but dangerous if we need to problem solve and create policy. Deeper understanding of the past is needed if we are to make decisions about the future.

Here is my proposition:

Many people enjoy a good historical narrative, but knowing the historical facts does not translate into strategic thinking talent. This is because most histories are written as coherent stories of conflict and competition. The resolution is frequently narrated so that the outcome seems inevitable. Further, most accounts of history severely discount the role of chance. A frequent reader of history comes to accept personal character as vitally important, and overlook chance. This historical-thinking mindset hinders their ability to make futures-ready decisions.

An Example

I know several people (all men) who enjoy reading history books about great historical leaders, wars, and movements. They describe it as an enjoyable hobby. These histories provide coherent, consistent, logical narratives.

These same people are among the first to criticize leaders of business and government.

I’ll illustrate this with Terry who I’ve known well for 20 years. Terry is an avid history reader and is intelligent. When it comes to contemporary affairs of business or politics, though, Terry will frequently criticize with comments like, “they have no commonsense” or “they’re idiots and don’t know what they’re doing!” In the spirit of having a good conversation, I try to get Terry to see if there is room for another point of view. I point out that situation is complex. I suggest that maybe the policy might have benefits that will become more obvious in the future. Usually, my words have little impact. Terry has determined all those business leaders and politicians (it doesn’t matter what political party) are incompetent and it’s settled.

Now, let me add this element to my example: Terry once ran a successful business. Unfortunately, he made some decisions that didn’t pay off. His bank and creditors forced him into personal bankruptcy. Terry’s decisions could also be characterized as lacking commonsense and lacking smarts. Although it ironic that Terry freely criticizes others for their strategic deficiencies but he doesn’t see it in himself. (Of course, it’s no surprise the find stories that protect their egos.)

Little Emphasis on the Role of Chance

Like many books on strategy, histories are written with the benefit of hindsight. The more entertaining story is one of leadership, conflict and decisions. An entertaining story is a coherent story. Readers are drawn towards those stories that “feel right,” and which engage the natural optimism that “it will all work out.”

The role of luck is too-often treated as context. Competent strategic thinking takes us in more nuanced direction. In particular, a strategic thinker recognizes the value of Daniel Kahneman’s note on the importance of luck: (2)

Luck plays a large role in every story of success; it is almost always easy to identify a small change in the story that would have turned a remarkable achievement into a mediocre outcome.

Forecasting & Plans: Is the Future Inevitable?

When you believe that “history is inevitable,” you’re also more likely to rely on trend forecasting. If there was a 10% change in a variable over the past year, you’re likely to assume that this same 10% will apply to the coming year. Your mindset is anchored to a number, and the status quo is often the result.

A similar idea characterizes planning. People create plans as if they will unfold in an inevitable way. There is little consideration for the role of chance.

Historical Thinking and Strategic Thinking

Historical thinking involves reading the works of other historians. As an element of critical thinking, you critique the choice of evidence, the framing of that evidence, the tone and word choice, and the resulting conclusions. Instead of the inevitable “march of history,” historical thinkers look for alternative “second stories” that might equally explain the past.

Strategic thinking is not oriented towards understanding the past, but rather towards making futures-ready decisions that take into account the uncertain shapes of the future and the implications of that future. Here I paraphrase historian David J Staley: (3)

Strategic thinkers understand that surprise, contingency, and deviation from trend lines is the rule and not the exception. Context matters. Strategic thinkers explore alternative possibilities of what might be, rather than definitive predictions of the future.

A good historical analysis, like good strategy, probes into deeper layers.

Do you agree that knowing history does not mean you are a historical thinker? Do you agree that a superficial knowledge of history is a detriment to strategic thinking? What are the strongest and weakest parts of my argument?

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  1. From the introduction to What If? 2: Emininent Historians Imagine What Might Have Been. 2001. Berkely Books.
  2. Daniel Kanneman. Thinking Fast and Slow. Farrar, Straus and Girious ebook
  3. A History of the Future. David J. Staley. December, 2002. History and Theory.

Enhancing (and Correcting) Your Understanding of Strategic Thinking

Strategic thinking before & afterThe nearby graphic is a “before and after,” prepared by workgroup from my How to Think Strategically Workshop in offered a few months ago in St. Paul. (The before is on the left and the after is on the right.) Both of them were developed in response to this question, What is strategic thinking about? In developing the graphics, the groups were given time to brainstorm and asked to narrow them to the top answers.

As you can see in the left side “before,” the group answered the question of What is strategic thinking about? with outcomes, transformation, focus, collaboration, planning, vision, and risk. This is a very respectable set of answers, but it could easily have been the answer for the question, What is project planning about? This is typical of many people’s understanding of strategy: it’s mentally categorized alongside the word plan. The word plan connotes the ideas of structure, alignment, prediction, and goals, which distract from an accurate understanding of strategic thinking.

The right-hand drawing was after a morning of seminar discussions and presentation. The same team relooked the question of what is strategy about, and came up with a much better set of criteria: Alert for opportunities, know [your] competitors, evaluate options, problem solving, re-framing, and insights. This “after” diagram clearly shows their understanding had become more accurate.

I particularly liked how labeled the graphic, “Making sense of the world around you.” That sense-making activity ties closely to the ideas of reframing and insight that are noted on the graphic. A strategic thinker looks at a situation with the intent to clearly and accurately perceive the situation. What is happening? is an important question. Supplementing that situational analysis is a recognition that there are always competitors (or substitutes); strategy is more than a set of aspirations.

As the strategic thinker gets a feel for the current situation, there are a two more questions that can energize their minds: What might happen? And What can we do about it?

Do you agree?

A Manifesto for Excellence in Strategic Thinking

Strategic Thinking Manifesto BadgeThere are two good reasons for you to read this article. First, a manifesto can help make strategic thinking more prevalent in your culture. Given the confusion in the field of strategic thinking, a manifesto is in order. Second, the practice of writing one will sharpen your own capabilities to communicate clearly to integrate divergent viewpoints.

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Manifestos are a literary genre. Generically, they are a tool for making public a set of ideas and advocate for those ideas. Some manifestos are radical in nature, and call for the overthrow of the status quo.  Since strategic thinking needs to be better socialized in organizations, and since the status quo leads to stagnation, the manifesto can be powerful. A manifesto is a call to action; a rejection of conventional ways of doing things.

A Simple Formula for a Manifesto

According to Tristan Tzara, “To launch a manifesto, you have to want A, B, & C and fulminate against 1, 2, & 3.”  It’s a nice straightforward template.  We first identify the kinds of things we want (Tzara’s ABC) and then register our complaints about the current state (Tzara’s 123). The final step is combining the 123s with the ABCs.

A Short List of Desirable Things (Tzara’s ABCs)

By definition, strategic thinking has an orientation towards “success in the future” (see the first article in this blog for the definition of strategic thinking). The word success is multidimensional in meaning. Here is a short listing of desirable things that people would want for the future of their organizations:

Survive and thrive. To win the game. Create wealth for shareholders. Avoid disruption. Be creative: express self and solve problems. Collaborate. Get things done in the here and now. Principles. Leave a better world for our descendants. Hope. Prestige. Coherence. Fairness. Social responsibility. Quality. Enlightenment. Transparency. Accountability.

A comment:  Strategy involves advancing the organization’s interests. All of the above are generically in the interests of most organizations, most of the time.  Because strategy is a kind of specialized problem solving, strategies must establish the relative prioritization of those interests given its current reality.

Social Responsibility is One of Several Interests

Notice many of the items in the above list, for business organizations, fall into the category of social responsibility. This is good news for strategic thinking, because current trends to expand the scope of organizational interests beyond financial metrics means that people are going to be more open minded and flexible in their values.

A Not-So-Short List of Things to Complain About (Tzara’s 123s)

Back to Tzara’s formula for a manifesto. He says a manifesto describes the things – a litany if you will – that we fulminate against. Consider these facets of the current condition:

Failed states and institutions. Short term, selfish behavior. Lack of integrity. Bureaucracy. Sloppy language and terms drained of meaning. Mediocrity. Existing power structures preserve the status quo. Desire for predictability. Excesses of functionalism and synoptic planning. Dogma. Disruption. Polarization in organizations and in society. Narrow, silos focused on strategically-irrelevant activities. Reasoning backward. Nepotism. Multitasking. Isolation and self-doubt. Firefighting and crisis management. Waste, sloth, and inefficiency. Distractions.

They are the current state.  Let’s quickly review current practices about strategic thinking. For most individuals and organizations, there is mediocrity and dysfunction. Most of them have to do with sloppy language. Consider:

  • Some people (erroneously) declare strategic thinking as the front end of the strategy process. First you think about things, and then make plans.
  • Some people (erroneously) use it as a label for their plea to “think about” strategy.
  • Some people (erroneously) use it as an excuse to introduce tools and frameworks of strategy analysis and strategy making.

Now, to top that off, the word “strategy” has been drained of meaning. For some, it is the goal or the vision. For some strategy is the steps to an objective. For some, it is an inspirational mission and vision.  Hence, the value of Richard Rumelt’s practice identifying good strategy so as to distinguish from bad strategy (bad strategy being the norm for most organizations).

I don’t know about you, but the current state of strategic thinking is populated by lazy people, cowards, charlatans, and the misinformed.  It makes me angry, and it believe that competency in strategic thinking and clarity of good strategy is a fight worth fighting!

Putting it All Together into A Manifesto

Following Tzara’s formula and the items listed above, we now have a template.  Here is what you write for the first part of the manifesto:

The current state of the world is ____ (select from your 1-2-3 list).  You continue with a statement that you find the current state unacceptable. If you want, reject it outright (the Latin roots of the word manifesto translate into “hostile hand”). This is unacceptable to us.

As you establish the current state is unacceptable, you move forward with a call to action. That is where the A-B-C list is helpful. You select from those “interests.” that are most basic, perhaps referring to them as original (first principles). In political discourse, you’ll find often reference to God in some (USA’s Declaration of Independence or Martin Luther King Jr’s Letter from a Birmingham Jail) or rationality (again, the Declaration of Independence and add to that Communist Manifesto). In artistic discourse, you’ll simply note that the prior state lacks truth or integrity.  In business, you’ll often find the reference point the founder’s values (care for the customer, frugality, excellence).

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Here my first cut at a manifesto:

A Manifesto for Strategic Thinking

Current practice in strategic thinking and strategy-making  is poor. Those leaders of organizations who hold misconceptions about strategy and strategic thinking are putting at risk the future of their organizations, and are not fulfilling their fiduciary obligations to shareholders and social responsibilities to stakeholders.

History shows our organizations and institutions are constantly under threat of disruption. If we are incumbents, we need to overcome the stubbornness of the status quo. If we can ethically gain advantage for ourselves by disrupting the status quo, we should take advantage of opportunities presented to us.

Board of Directors should replace leaders who can’t competently practice strategic thinking and can create good strategy. Corporate Governance should audit for good strategy and not just supporting verbiage for budgetary projections.

Leaders at all levels must invest in learning and practicing strategic thinking. People at all levels need to have a clear understanding of what good strategy is and is not. Further, they need to clearly understand what strategic thinking is and is not

With clear and reasonable understanding of the foundation concepts, any person can practice strategic thinking. In working with their organizations, they can develop and implement good strategy. It simply takes courage to identify and face up to challenges, the willingness to invest resources, and combine the resources with action.

Yanshevsky writes, “The author of a manifesto sees himself first and foremost as a researcher, an inventor, a discoverer.” Do you agree?  

Strategy is Not One Right Answer

In a recent HBR blog post, Roger Martin poses and answers a question: Why Do Smart People Struggle With Strategy? The answer he gives is this: because there is no right answer.

While I agree with Martin that GOOD strategy probably does not have one right answer, I think he missed some important points.

Smart People can be Good Operations Thinkers, but Can’t Think Strategically

I think the reason for the struggle is that many smart people in organizations quickly become accomplished managers and executives. They run operations, find right answers, and get results.

I call these smart people operational thinkers. It’s mostly a learned skill, but there are some personalities that lend themselves to that domain. Operational thinkers, as a general rule, value productivity and prefer those tools and models that enhance productivity.  As a result (and over time), they learn a set of workplace skills that take them far in their careers: a value on planning, a keen sense of responsibility for production, the ability to get along with their peers (not hurt their feelings unless absolutely necessary), a desire for orderliness, the value of experience in a given domain (and the intuition that comes with the recognizing the patterns of that domain), a liking of process and a dislike of ambiguity, and a preference for use of deduction in a problem solving.

As a consequence of their accrued organizational power, operational thinkers are privileged to participate in discussions about long-term plans and budgets. As they do this work, they conflate the word strategy with strategic (as in strategic decision) and with the word plan. Long-term plans and budgets, while necessary for coordination of activities, are often confused for strategy, which is a kind of problem solving involving the interests of the organization in the face of dynamic and potentially disruptive change.

Strategy involves Inverse Problems, not Direct Problems

Direct problems as typical of operations work and inverse problems are typical of strategy work. Direct problems are well defined and inverse problems are ill defined.

Here is an example of a direct problem that a client company regularly faced: It would pay premium pricing to air-freight relatively inexpensive parts from China. The reason this problem was that product designers did not identify long-lead time items and communicate their needs to the procurement team. The solution was training and incentives to create new behaviors. Here we see effect (expense of air freighting parts) and we can easily find the cause (lack of knowledge, skill, and incentive). Well-defined and direct problems have a clear path to a solution.

Goal setting is an example of a direct problem.

Strategy are inverse problems, such as “what markets do we want to be in, and how might we prevail?” Inverse problems are ill-defined problems in the sense that there are numerous possible causes, possibly more than solution, and the ultimate goal may change as circumstances change.Simple solution are not likely to exist.

Instead, inverse problems require holding a lot of information in mind, tolerating ambiguity, and searching for insights. This is a doubly-difficult job because of organizational politics and culture.

Do you agree?

Seven Suggestions for Creating Clever Strategy

Clever StrategyWhat do you do if you don’t have high-quality strategic resources but want a good strategy?  The answer is to create a clever strategy. Here is my definition of a clever strategy,

A clever strategy is one that blends action with limited resources to produce an effective result.

The starting condition for a clever strategy has to do with stretch goals and with resources that are inadequate in some way. It’s the classic challenge for entrepreneurs. The appropriate thinking style is imaginative, pragmatic, and pattern-oriented.

Here are my suggestions for stimulating clever strategy:

  1. Don’t fixate on stretch goals. Mentally detach so that you can concentrate on the ways and means to get to that goal. The essence of cleverness is “Get more out of less;” to turn the “ordinary to the extraordinary.” Perfect strategy is not the goal; instead be satisfied with any progress towards your goal.
  2. Evaluate the resources that are presently available to you. If they are unexceptional in quantity or quality, you have a signal that you will need cleverness. Carefully examine the resources and ask yourself, “How might I reuse, repurpose, recycle, reconfigure, and adapt them?”
  3. A sense of playfulness and sense of humor can spark ingenuity, so have some fun. A new environment can help.
  4. Try lots of ideas. More unconventional ideas tend to spark clever strategy.
  5. Try to jam together “opposite ideas,” which often leads to a phenomenon called creative desperation.
  6. The concept of hacking can helpful. “The essence of a hack is that it is done quickly and is usually inelegant,” explains the Tech Model Railroad club at MIT (a group that was partially responsible for the internet).
  7. Use your imagination to anticipate the future. Keep in mind hockey great Wayne Gretzky’s quote, “Others skate to where the puck is now. I skate to where it’s going to be.”

Have you applied any of these seven suggestions? What else do you suggest?