Willie’s Blog Posts

Why Strategy Is In Trouble

“Strategic thinking rarely occurs spontaneously. Without guidelines, few managers know what constitutes strategic thinking.”  – Michael Porter

Recently an executive at a company seeking my advice sent me an email with a revealing typo: “We are in the mist of our strategic planning process” he explained. I soon learned how true this was. The organization’s strategy development process was mired in a fog of complexity and confusion. Unfortunately, this story is not unique.

A global Gallup survey found that only 13% of employees feel engaged at work. This low level of commitment is consequential. The survey showed that companies in the top quartile for engaged employees generated 22% greater profitability than those in the bottom quartile. Strong employee engagement depends on a clearly articulated strategic vision. Research by Schwartz and Porath identified two key factors that drive employee engagement: the opportunity to focus on the most important tasks and feeling connected to a higher purpose.

In today’s disruptive environment, the ability to unify organizations behind winning strategies has arguably become the most important leadership capability of all. The problem is that more than any other business process, strategy is largely misunderstood and therefore misapplied.

It is time to clarify our thinking about strategy. Let’s examine its three vital components: The concept of strategy, the content of strategy and the conduct of strategy.

The Concept of Strategy

If we want to excel at something, we must first understand what it is. We need to think strategically before we can function strategically.

All strategic thinking flows from the inescapable reality of limited resources. In a fantasy world of unlimited resources, we would not need a strategy. We could simply hurl resources endlessly at our problems and never be defeated. We would not need to take risks or make trade-offs and competition would be irrelevant. There is no such condition in any organization or indeed any country. If an organization spends more resources than it gets back, it goes broke. The collapse of corporate icons General Motors and Kodak are stark examples as was the downfall of the Soviet Union in the geopolitical sphere.

Strategy is about harnessing insight to make choices on the effective deployment of scarce resources with the aim of creating competitive advantage.

Finite resources force organizations into a zero-sum game. Every additional thing you do subtracts energy from everything else. A choice is not a choice until you have decided what you will give up. Otherwise you are simply piling it on – a recipe for failure. Just look at how General Electric became over-extended and saw its performance drop precipitously. It is now in the process of subtraction, but is it moving decisively enough?

The Content of Strategy

 Strategy is not simply a process of open-ended choice-making. To be useful, a strategy must produce a set of specific deliverables by answering four questions:

    1. What are our key insights about the external environment?
    2. In which arenas will we compete?
    3. What will be our winning proposition and key priorities?
    4. How will we implement our strategy?

Without this roadmap, an organization will be navigating the competitive environment in a directionless process of ad hoc decision-making.

The central deliverable of a strategy is the answer to question 3. Strategy is about winning, not just participating. Many organizations settle for an easy answer by defining their “value proposition.” Such a bland statement is simply not competitive. Value is a relative concept, not an absolute. It is like the temperature. Customers have choices. Why should they choose you?

To win customers you must define your winning proposition, not a mere value proposition. This defines the margin of difference in the value you will offer your customers that provides a compelling reason for them to do business with you.

A good example is the winning proposition for the Institute For The Future, a non-profit think tank of which I was chairman for 5 years. IFTF concentrates on analyzing long term trends in areas like healthcare, libraries, IT, etc.  After a rigorous situation analysis, we developed the following winning proposition:

We are sense-makers about alternative futures to help organizations make better decisions in the present.

 This proposition was based on a clear understanding of what clients valued most: crisp sense-making rather than amorphous reports, and the enhanced ability to address current challenges with the future in mind. The entire IFTF staff was aligned on producing these high value deliverables for its clients.

To focus your employees on the most important tasks, your winning proposition must be supported by the firm’s key priorities: the 3 – 5 things that will make the biggest difference to its success.

A major source of confusion is the distinction between strategy and planning. Their deliverables are totally different. Mixing them in one process makes no sense and subverts strategic thinking.

Strategy is about doing the right things. It is about insights, ideas and an external perspective. Planning is about doing things right. It is about numbers and logistics and is internally focused. Strategy comes first and planning follows. Think about running a railroad. Strategy determines where to lay the railroad tracks. Planning makes the trains run on time.

The Conduct of Strategy

What method is best for translating these ideas into practice?

In today’s volatile marketplace, the old static ways of developing a strategy no longer work. We need a dynamic process of continuous learning and renewal – a way to refresh the answers to the four questions as the environment changes. An organization’s survival imperative is Darwinian – the ability to create an adaptive enterprise.

I have devised a method to achieve this goal called Strategic Learning that has been successfully applied across a wide spectrum of commercial and non-profit organizations. It involves four steps that mirror the four deliverables – learn, focus, align, execute.  These move in a cycle as shown below.

Key Features of the process 

  • The sequence is crucial. The essential starting point is the Learn step. The situation analysis is the intelligence system that informs all subsequent steps.
  • The Focus step is the core of a strategy. The winning proposition is the central animating idea that guides all an organization’s decisions and activities.
  • The elements do not work in isolation. Each step builds on the prior one and confers power on the next step.
  • Strategic Learning is not only a procedure. It is a way of thinking. “Strategy is not just about what we think, but how we have thought it,” explained von Clausewitz, the military strategist.

 Vital strategy disciplines

Outside-In approach

Success occurs outside the boundaries of an organization. Inside is where we mobilize our resources and count the money. A key to strategic thinking is to always look outside first, then inside, in a “sense and respond” mode. 

Involvement

The psychology is clear: people support what they help to build. Employees find meaning in their work when they feel connected to a cause greater than themselves and are offered the opportunity to make a difference to the outcome. A key to success is to create wide participation in the process.

Simplicity

Complexity paralyzes an organization. Simplicity empowers it. Define the strategy in the simplest language possible. No acronyms, buzzwords, or arcane technical terms.

A strategy document should never exceed 10 pages. Anything longer will lose its audience.

Communication

The final deliverable of a strategy is not a document. People don’t follow documents: they are inspired by leaders and ideas. While it is important to codify your strategy as a frame of reference, this is not enough. The key is to translate the strategy into a compelling leadership message to win hearts and minds and repeat endlessly.

Sometimes a company will say to me, “Our industry has become commoditized. Now we must protect our profit margins through cost reductions.” This is a prophesy of doom. With ingenuity, there is always an opportunity to achieve differentiation. I believe that with rare exceptions there is no such thing as a commodity. At either end of any transaction are human beings with needs and preferences.

A good example is the US yogurt industry. By 2005 it had settled into maturity with modest growth and little innovation aside from variations in flavor, fat content and packaging that made only incremental differences. Greek yogurt comprised a meager 1% of the market and seemed to be dead in the water.

In 2005 an immigrant from Turkey called Hamdi Ulukaya who worked as a shepherd in his homeland, saw the gap and launched a new Greek yogurt called Chobani (meaning shepherd in Turkish). It differentiated itself by emphasizing its quality, authenticity and social conscience. The brand hit a nerve with customers. In a stunning coup the launch disrupted the once stable yogurt market. Chobani overtook Yoplait as the market leader and within 10 years it reached over $2 Billion in revenue. In the process, the Greek yogurt segment surged to over 50% of the total market.

When it comes to a winning strategy, good analysis is crucial. But that is simply a foundation to build on. What ultimately makes the difference is a combination of insight, customer empathy and imagination, plus a good dose of personal courage.

Posted by Willie Pietersen at 12:39 PM | 0 Comments

Want a Breakthrough Idea? Take a Hike

“Angels whisper to a man when he goes for a walk.”
– Raymond Inmon

As a CEO I developed a daily habit. Every morning before work, I walked for two miles through Central Park. My initial motivation was physical fitness, but I soon made a transformative discovery: During these walks, breakthrough ideas would come to me totally unbidden. Often, I found a solution to a knotty problem that had defied my attempts to produce a good answer through rational analysis or intensive discussions with colleagues.

I came to realize that these solo walks were not just a form of physical exercise — they induced a state of “mental freedom” that released avenues of creative thinking not evoked in conventional ways of problem solving. I protected my “walking time” zealously. On overseas trips, the rule was that my daily schedule would not begin until I had done my two-mile walk. Among my favorite places were the scenic botanical gardens in Sydney and the tranquil water gardens in Tokyo. Settings such as these intensified my awareness of our human connections to the natural world and opened my mind to even broader perspectives. Colleagues took to teasing me when I offered a fresh idea. “Ah, we see you took your walk this morning.”

What was going on here? At first, I thought this experience was idiosyncratic — an individual quirk. But the science tells a different story. Aerobic exercise such as walking improves our cognitive function by releasing two chemicals: A protein called BDNF that nourishes and energizes our neurons, and hormones known as endorphins that produce a sense of calm and well-being.

The combination of these chemical actions enables us to think in deeper, more imaginative ways. This is true for everyone. A Stanford study released in 2014 found that walking increased a person’s “creative output” by an average of 60 percent. Steve Jobs of Apple was known for conducting walking meetings, which are increasingly popular among employers, highlighted by a recent front page article of the Wall Street Journal that quoted an executive gushing how “ideas started to come to life” during a walk-and-talk through Bryant Park in midtown Manhattan.

Many of the world’s great thinkers got their breakthrough ideas while walking:

  • James Watt, who perfected the steam engine that ushered in the Industrial  Revolution, came upon his discovery while going “for a walk on a fine Sabbath afternoon. I was thinking upon the engine at the time and had gone as far as the Herd’s house when the idea came into my mind.”
  • Nikola Tesla gave birth to the idea of the rotating magnetic field that enabled broad scale electrification during a walk in a Budapest park in 1882.
  • Friedrich Nietzsche, the 19th century philosopher, produced his most profound thoughts during long Alpine walks. “All truly great thoughts are conceived while walking,” he claimed.
  • Ludwig van Beethoven, the renowned composer, took long walks in the afternoons, regardless of the weather. He carried a pen and sheets of paper where he recorded his many inspirations during these outings.
  • Werner Heisenberg, who discovered the foundations of quantum physics, achieved the breakthrough in his thinking during a two-week absence from the University of Göttingen to recover from an illness. He traveled alone to a remote archipelago on the North Sea and was doing nothing but taking daily walks and going for long swims when the bewildering intricacies of quantum theory formed clearly in his mind.

Today’s dynamic business environment presents us with a toxic mixture of speed and complexity. It is becoming nearly impossible with traditional thinking tools to make sense of these confusing conditions. We are being forced into shaping the future of our organizations on the run. We call hasty meetings, glance quickly at position papers, sit through dense PowerPoint presentations, and are then expected to make immediate decisions. I often hear the disturbing comment from executives that, “We don’t have time to do a strategy.” The challenge is clear: We must learn better cognitive skills to cope in real time with a disruptive landscape, in circumstances where we will never have perfect information.

There are essentially two modes of thinking: breaking an issue down into its component pieces (analysis) or seeing how the pieces fit together (synthesis). Research shows that strong analytical skills are common among executives, whereas the ability to synthesize is very rare. This presents a problem. Many major advancements in the history of knowledge, such as Einstein’s theory of relativity and Darwin’s insights on evolution, have been acts of synthesis rather than analysis. They involve seeing connections that had previously not been understood. While analysis deepens understanding, synthesis is a pathway to wisdom. By now, it should be no surprise to hear that Charles Darwin took regular walks. Einstein, while he was was grappling with the intricacies of his general theory, induced his mind to wander by playing Mozart on his violin.

As illustrated in the above examples, to walk is to think, and do so in different, more creative ways. In short, it helps us make sense out of chaos— a crucial role of strategic thinking. As the famous military strategist Carl von Clausewitz declared: What matters most is not what we have thought, but how we have thought it. I have found on my walks that most of my insights were acts of synthesis rather than analysis — perceiving patterns and finding meaning in the relationship between things.

It was on one of my walks that I first discerned the idea of holistic leadership that unifies strategic leadership, personal leadership, and interpersonal leadership as depicted in the figure below. I began to see how these three domains are mutually supportive, like an ecosystem, and that if one aspect is deficient, it undermines the other two. This theory of integrated leadership has since found its way into my teaching. Would I have connected these dots while sitting at my desk? Maybe in rough outline at best, but it was the process of walking that sharpened and deepened my thinking.

The Three Domains of Leadership

Two classical images sum up the contrasts in thinking methods. The first is Rodin’s “The Thinker.” It is an exquisite depiction of the male form in contemplation but sends absolutely the wrong message. A static posture is not the best way to develop creative ideas.

         

The second image shows Plato and Aristotle walking and reasoning together. This captures Aristotle’s unique practice of teaching while walking about. His followers became known as the peripatetics — Greek for strolling around.

Aristotle’s powerful example has come full circle. Modern times have created daunting challenges of thinking clearly in chaotic conditions while being assailed by constant distractions. Winning strategies depend on our ability to see through the fog of complexity and develop the keenest insights. We must sharpen our thinking tools. A simple and effective method is within our grasp. Become a peripatetic. In today’s parlance, take a hike.

Finally, a confession, and you probably guessed it: The idea for this story came to me during a morning walk.

Walking Tips
– Walk as a daily habit. Mornings are best.
– Venture outdoors (weather permitting) so you are exposed to the wider world.
– Turn off your cell phone.
– Ideally, walk for 20 to 30 minutes. Also take brief walks between intense mental tasks.
– Free up your mind. Ideas will come to you.
– Write down your insights and keep a learning journal.

Posted by Willie Pietersen at 3:14 PM | 0 Comments