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

Advertisements

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?

~~ ~~

  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.

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.

~~ ~~ ~~

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).

~~ ~~ ~~ ~~ ~~

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?  

Brilliant Strategy: How to Recognize It

brilliant strategyWhat is a brilliant strategy? an executive asked of me. Thinking quickly, I used the gemstone analogy and said a brilliant strategy is recognized by contrasting its results with other strategies.  It noticeably shines and stands out.

I followed that brief definition with an example. I mentioned the Oakland A’s professional baseball team of the early 2000s. It was an organization with limited resources that was able to consistently get better results than its rivals; its brilliance was manifested in the contrast with conventional baseball strategy. The book Moneyball explains this well.

Unpacking the Analogy

Afterwards, I wondered to myself: The gemstone-to-strategy analogy seems reasonable. I wonder if it is a strong or weak analogy? Did I get the details right? So, I did what all of us do. I went to Google and typed in “What makes a diamond brilliant?”  I learned that brightness and contrast are two basic factors that drive the brilliance of a diamond.

  • Brightness in a diamond refers to the light projected through the crown of the diamond. It is achieved by cutting the diamond so light entering from the sides is reflected upward. A diamond cutter sets the angles in the stone to maximize the light moving through the crown. That’s a straightforward task, but it entails tradeoffs of weight (carats) which affects the marketability of the diamond. In other words, you could have a diamond that is cut to maximize the objective measure of weight (“Oh look at this 1-carat diamond!) or to a more subjective parameter (“Wow, that diamond really sparkles!”).
  • Contrast in a diamond has to do with the placement of bright facets next to darker facets. We make something dull seem brighter by placing it next to something dark. Consider the contrast of a chess board.

I also learned that I hadn’t asked the right question, the idea of “sparkle” is also relevant. It’s not enough for a diamond to look good in a display case or in a jewelry store, it needs to dazzle out in the real world. As the diamond moves around, it catches light on all its facets; some reflect white, others reflect colors. The interactions are the phenomena that cause sparkle. The descriptors of fire and scintillation help us to understand sparkle.

  • Fire in a diamond refers to the prism effect: splitting a beam of light into flashes of spectral colors.
  • Scintillation is how the diamond sparkles when it moves. It is a dynamic quality, but is designed by considering size, number, and symmetry of facets

Brilliant Strategy

Diamonds are cut from raw materials; they are deliberately designed. The diamond cutter must consider a number of variables when cutting a diamond. They include the original shape of the rough stone, location of internal flaws, the preservation of carat weight, and popularity of certain shapes among consumers.

Likewise, strategy is a design that is fashioned from resources and insights. The analogy holds up: A raw stone is analogous to resources, the cut is the action, and the competitive element is the fact that a customer can make a choice.

If a diamond can be deliberately designed for brilliance, so can a strategy. Here is how the sub-elements of brightness and contrast would be expressed for strategy:

  • Brightness in strategy is the way that the firm leverages resources to achieve focus.  The Moneyball strategy practiced by the Oakland A’s baseball team was focused: the team would acquire players who were undervalued by the market for their abilities to get on base, and trade or sell those players who were overvalued.
  • Contrast in strategy is making decisions on what you are not going to do. The A’s were willing to accept mediocre (or worse) defensive capabilities from a player to gain the advantages of the player’s bat. The book devotes an entire chapter to highlight the experience of Scott Hatteberg – an able hitter – as the team placed him in the unfamiliar position of first base.  In order to maximize offense, the team was willing to accept his weak defense.

Now, what about sparkle? These qualities are more elusive and subjective. It seems that large stones have more opportunity to design for sparkle, so the idea of sparkle might be something that is true for grander strategy.

  • Fire in strategy is increased by having more facets to the strategy. The movie Moneyball didn’t show the fire that the book described. The movie suggested that a wunderkid (Jonah Hill’s character) with a computer was whispering into Billy Beane’s (played by Brad Pitt) ear. That depiction was more Hollywood than the actual story, where the key facets were that the ballclub’s owners gave its General Managers more power than other clubs, the experiences and skills of GM Billy Beane, and the rise of fantasy baseball leagues (which create a cadre of unconventional thinkers who could communicate through the internet).
  • Scintillation in strategy is a dynamic quality. A scintillating strategy is one that is practiced in small and coordinated ways across the entire organization. For Oakland, there were a number of other important behind-the-scenes people who made a significant different. As an example, Scott Hatteberg was extremely uncomfortable playing first base, so the coach Ron Washington encouraged him, allowing him to gain confidence. Scintillation, then, is something akin to what many people call strategy execution: the aligned actions of people in middle management to support (or at least cope with) the discomfort and impositions of the strategy.

Was I Right?

My initial remark that a brilliant strategy is one that has contrast was correct. However, I’ve since learned that I missed the ideas of brightness, fire, and scintillation.

I’m looking for more examples of brilliant strategy. Also, what would you change about this analogy?

Gregs new book available now

Four Causes of Mediocre Strategic Thinking

Mediocre Strategic Thinking (Four Causes)Avoiding mediocre strategic thinking by better understanding strategy

Mediocre strategic thinking produces mediocre strategy. Strategic thinking is an individual capacity, a style of thinking that can be developed, but is often hindered by the beliefs of others.

Here are four causes of mediocre strategic thinking (and there are certainly more that could be described):

1. Overlooking the significance of rivalry.

As organizations grow in size and complexity, they specialize and turn over responsibility for sales, deal making, and customer service to specialists. As those individuals lose touch with customers and markets, they shift their focus to  the rules, process, and tasks of their work. Eventually, strategy devolves to become a kind of goal setting.

Even more important, many managers give up on trying to understand why competitors are making inroads. They complacently believe in the superiority of their employees, products, and business models. Rivals (and substitutes) want your markets and profits, and they sneak up on you.

Making people aware of competition was one of Louis V. Gerstner Jr’s big challenges in turning around IBM. Here is how he expressed his frustration to a senior management team in 1994:

You know, I have received literally thousands and thousands of email messages since I’ve been in this company, and I’ve read every one. I want you to know that I cannot – I cannot – remember a single one that talked with passion about a competitor. [Comment: My reading of the entirety of Gerstner’s book, Even Elephants Can Learn to Dance, shows me that he meant the word “passion” as anger towards an external threat.] Many thousands of them talked with passion about other parts of IBM. We’ve got to generate some collective anger here about what our competitors say about us, about what they’re doing to us in the marketplace. This competitive focus has to be visceral, not cerebral. It’s got to be in our guts, not our heads. They’re coming into our house and taking our children’s and our grandchildren’s college money. That’s what they’re doing.

When was the last time you visited or talked to a customer? When was the last time you checked the feed on your organization’s (and your competitor’s) social media? What does your organization do to frustrate the customers?

  1. Confusing Strategy with “Steps To”

It is a gross oversimplification to say that strategy is the “steps to” the a goal. Strategy is not like a road trip with an established path. Strategy is more like the process of curing a disease.

Strategy making resembles the process of becoming a medical doctor. Novice physicians (newly-graduated MDs) often practice “backward reasoning” and jump from initially presented information to a diagnosis to search for data that supports their initial impression. Many business people use this same kind of backwards reasoning. I recently read the remarks of a General Motors Vice President explaining that chess masters pick their end goal (the checkmate) and work back from it. Not only is that an example of backwards reasoning, it’s an erroneous declaration; research shows that chess masters develop their games through patterns and react to the patterns established by their opponents. (You can find more on chess and strategy described in this article).

Expert business strategists, expert medical doctors, and chess masters employ “forward reasoning.” As they enter into a situation, they take note of symptoms and patterns. Then, they develop several possible diagnoses or ploys. They dig deeper into the data and use it to determine which hypothesis best fits the data.

  1. Over-valuing Ordered Perfection

Strategy making is an inherently messy, ambiguous process. Let’s consider the early step of environmental scanning, where we see signals – strong and weak – from existing customers, prospective customers, competitors, and regulators. What do they all mean?

As a general rule, people don’t like ambiguity. It causes them stress and they try to eliminate it if they can and ignore it if they can’t. One way of eliminating ambiguity is the famous use of mission, vision, and values statements. These can be useful tools; however, don’t waste time with endless word-smithing and polishing.

Good strategy isn’t about perfect statements of intent. Instead, good strategy focuses on finding insights in the signals and developing useful guidance for exploiting those insights. It involves educated guesses about a range of important things: the current situation, the future situation, the intentions of competitors and stakeholders, the values of stakeholders, and power.

Good strategic thinkers tolerate ambiguity. They are open to experimenting with the business model and learning from those experiments.

  1. Elitism

Too often, those people invited to strategy making sessions are invited because of their status, not because of their ability to contribute to the hard work of making strategy. Last Autumn, I learned that a Human Resource Vice President of a snow-belt-based company, on behalf of the CEO, was planning a strategy retreat in the Bahamas. The invitees to the session were the CEO’s top team. It seems likely that this strategy meeting was an excuse for a selected inner circle of managers to escape a cold Toronto winter. They’ll come back with a vision and a suntan, but I wonder if they will come back with anything the helps them address their organization’s challenges.

Another large, family-owned firm faced a similar problem. Many family members had inherited stock in the company and felt that gave them the right to demand board membership and to have their uninformed (and often selfish) views and opinions considered by the Managing Committee.

While top managers typically have a broader view of the organization, it does not hold that only they are exclusively best qualified to provide open-minded thinking and fresh perspective. While company owners are legitimate stakeholders, they often attention seekers. Status and privilege are not the characteristics of strategic thinkers,

Instead, look for every way you can to get customer insights, next generation perspective, and the voice of the technology into your strategy discussions.

Final Thoughts

Strategy making is a form of problem solving; not just a goal-setting or budgeting exercise. Strategy is about advancing the organization’s interests. To do it well you have to ask some basic questions:

  • Have we defined and committed to our basic organizational interests?
  • As we consider the future, what are the most important problems,issues, and opportunities that affect our interests?
  • Have we looked for weak signals outside of the normal discourse of our organization?
  • Are we alert for “pockets of the future” that are presently around us?

As you avoid these four causes of mediocre strategic thinking, you should migrate towards this advice from the respected academic, Henry Mintzberg:

“The real challenge in crafting strategy lies in detecting subtle discontinuities that may undermine a business in the future. And for that there is no technique, no program, just a sharp mind in touch with the situation.”

Do you agree with this list? What other causes would you add?

Gregs new book available now

How to Develop a Perspective: Core Challenges and Strategic Thinking

Individual perspective is a foundation of strategic thinking. Perspective is more than a switchable point of view. It is an organizing framework that helps articulate an understanding of the core challenge that is the essential cause for developing strategy.

As you build your strategic thinking competency, the best way to develop a useful perspective for strategy development is to start with yourself. Don’t be concerned with strategy; be concerned with your own personal story and experiences. You already have a personal perspective, but if I asked you to put it into words, you would probably struggle.  Here are six suggestions that might help you find those words:

  1. You could make a list of things that have influenced you. It could include books, public speeches, movies, and mentors.
  2. What life experiences have influenced you? I believe that a personal perspective shares much with the concept of your life’s story, the way that you conceive of where you’ve been, where you are, and where you’re going.
  3. What has traumatized you in the past? In particular, I find interesting the presence of near-death experiences. We can make the argument that Christopher Columbus’ survival of a pirate attack and shipwreck in 1476 was a turning point in his life. Before then, he was a seafaring adventurer but afterwards we can see that he really started to grasp the strategic concepts that would lead to his endeavor to gain resources to sail west. Near death experiences can provide a compelling sense of clarity – that is, perspective – to people. Consider this report cited in USA Today in an article on CEOs and near-death experiences:

Last June [2008], management consultant Grant Thornton surveyed 250 CEOs of companies with revenue of $50 million or more. Twenty-two percent said they have had an experience when they believed they would die and, of those, 61% said it changed their long-term perspective on life or career. Forty-one percent said it made them more compassionate leaders; 16% said it made them more ambitious; 14% said it made them less ambitious.

Regardless of whether you have had a near-death experience and/or trauma, I believe that you can use your imagination to consider your perspective about what is important and what is not.

  1. What is your personal brand or elevator speech? A personal brand is represents the way that you think about yourself and how you want others to think about you.
  2. What is your sense of moral righteousness? Branch Rickey, the General Manager/Owner of the Brooklyn Dodgers is best remembered for his role in integrating Major League Baseball by bringing its first black ballplayer, Jackie Robinson, into the League. He said that he remembered how a black college teammate was mistreated, and felt that this was a wrong that needed to be righted. Besides, he wanted to do anything he could to field winning ball team.
  3. Do you have any skepticism about “the system” and prevailing wisdom. Perhaps you are offended or annoyed by traditions and the establishment. As an example, Billy Beane, the General Manager of the Oakland A’s Baseball team (and of Moneyball fame) carried with him a skepticism about the ability of scouts to accurately judge baseball talent. When he was told to win with a radically reduced payroll, his perspective likely contributed greatly to his practice of strategic thinking.

Again, use this list as a starting point for articulating your personal perspective.

The Strategist’s Perspective

The next step is to develop that perspective in light of your need to develop strategy. Note the nearby graphic. It starts with a statement that brings more focus to “a courageous and commonsense view of the competitive challenge.” This statement seems adequately descriptive of the situation that strategic thinkers like Louis Gerstner, Estee Lauder, and Christopher Columbus confronted.  It suggests some general principles of a good perspective on strategy

  • Value is found in contrarian Time and again, we see great accomplishments in taking a contrarian perspective different from than the prevailing wisdom.
    • Courage is distinctive characteristic of many strategic thinkers
  • The perspective is coherent.
    • As NVIDIA’s co-founder Jensen Huang said, “Our perspective was commonsense.”
  • It is contextualized to address the unique nuances of the situation.
    • It acknowledges the challenge facing the individual or the organization, especially regarding competitive posture and advantage.

Contrarian Coherent ContextualizedA Dance: Perspective and the Core Challenge

A core challenge is a single challenge (or a cluster of related challenges) that holds significance for the individual’s or the organization’s future success. Strategy is the designed response to a core challenge. Often people are so busy trying to solve the problems that face them that they don’t bother to think about the problem; more specifically, people spend insufficient time defining the problem. People avoid thinking about and confronting problems that are unpleasant and require action.

I’ve often asked people, “What is your core challenge? or What do you Want to be Different?” Unfortunately, the answers often show little depth of understanding.

Thus, we might have chicken-and-egg situation where it’s pointless to worry about what to do first.  The path forward, I suggest, is to simultaneously consider the two questions of perspective and core challenge. Strive to make progress and deepen your understanding of both.  As you do so, insights will emerge and you’ll move closer to understanding the strategy that best fits your situation.

Can you articulate your strategic perspective and core challenge?