Are You Strategic?
By Rich Horwath
“I was thrown out of college for
cheating on the metaphysics exam; I looked into the soul of the boy
sitting next to me.” -
Until now, looking into someone’s
soul is about the only way we’ve had to guess at whether or not
someone is “strategic.” In many organizations, it is assumed that
senior executives are strategic and lower-level employees are not.
As you might imagine, strictly using someone’s title to determine
their strategic ability is as accurate as using a Hollywood star’s
popularity to determine their knowledge of political issues.
Leadership research by the American
Management Association has shown that the most important competency
for a leader to possess is the ability to develop strategy.
Unfortunately, when researchers examined leaders at all levels in
organizations, they found only 4 percent could be classified as
strategists. According to the Institute of Directors in London, the
wide gap between the importance of strategic thinking and the
percentage of leaders that actually are strategic can be attributed
to the fact that 90 percent of executives at the vice president
level have had no training to become competent strategists.
There are three defining principles
that great strategists continually apply to their business in order
to enable them to outperform their competition:
1. Create Differentiation:
Differentiation for competitive advantage in business has its roots
in science. In 1934, Professor G.F. Gause published the results of a
landmark study. In the study, he placed small animals in a bottle
with an ample amount of food. If the animals were of the same genus
and a different species, they were able to live together peaceably.
However, if the animals were of the same genus and the same species,
they were not able to coexist. This led to the Principle of
Competitive Exclusion, which states: No two species can coexist if
they make their living in the identical way.
Open the newspaper and read about the
struggling companies … it’s a good bet that one of the reasons they
struggle is because they fail to pay heed to the Principle of
Competitive Exclusion. They are stuck doing the same things in the
same way as their competition. Jeffrey Immelt, Chairman and CEO of
GE, has written, “GE must look different … act different … be
different … to excel in the years ahead.” Notice he didn’t write
that GE must be “better.” He specifically chose the word “different”
and used it three times to emphasize his company’s understanding
that the road to success in business is paved by differentiation
from the competition.
What do Johnny Cash and the
Mini-Cooper automobile have in common? Johnny Cash didn’t have the
best singing voice and the Mini-Cooper isn’t the highest performance
automobile on the market. However, they have both been remarkably
successful, not because they were “better,” but also because they
were different from their competition in ways their core customers
valued. Strategic leaders are continually asking two questions:
What are the different activities
we’re performing than our competition? What are the similar
activities we’re performing in a different way than our competition?
2. Focus Resources:
Focus demands that we have the discipline to allocate resources to
specific areas and activities, rather than spread them evenly across
the business. Focus comes from the ability and willingness to make
tradeoffs. Tradeoffs are about choosing one path and not the other,
and they involve incompatible activities—more of one thing
necessitates less of another. In most industries, one can choose to
be the leader in researching and developing new products or the
leader in providing low-cost goods, but cannot do both without
bearing major inefficiencies.
Making tradeoffs is one of the most
difficult tasks for most managers, and the result is they rarely do
make the necessary tradeoffs. Instead, they hedge their bets and
abide by the adage of “trying to be everything to everyone.”
Therefore, good leaders cannot afford to be like Farmer Brown. In
the morning, Farmer Brown hops on the tractor and spreads fertilizer
evenly across the crops in hopes that everything will grow.
Strategic leaders don’t spread their resources evenly across the
business in hopes that everything will grow as well. If they do,
their business will ironically end up in the same condition as
Farmer Brown’s fertilizer.
Strategy is as much about what you
choose not to do, as it is about what you do. Focus requires
tradeoffs and tradeoffs require risk. Those leaders not willing to
take risks will never make it to the top of the strategic summit.
Two questions to begin thinking in terms of focus: What potential
offerings have we chosen not to provide to customers? Which
potential customers have we chosen not to serve?
3. Design Systems:
From the coral reefs of Cozumel, Mexico to the Amazon rain forests
to our own bodies, life is comprised of systems. Strategy is no
different. Great strategies are comprised of a system of activities
that tightly fit together and act as a shield to competitors
attempting to copy your successful business. As an example, if there
is only one activity comprising a strategy, the chance a competitor
can successfully copy it is relatively high; 90 percent or .90. With
three activities comprising the strategy, the probability of a
competitor successfully emulating the strategy drops to 73 percent.
Creating a system of strategy involving ten activities significantly
diminishes the competitor’s ability to copy the leader.
While the aim is not to have dozens
of activities simply for numerical sake, thoughtfully creating an
interconnected web of complementary activities is of great value in
maintaining a differentiated strategy from the competition.
Strategic leaders ask two questions
relative to their system of strategy: How many activities currently
comprise the strategy? What are the three to five strategic themes
that are going to be the centerpieces of the strategy system?
Soul Searching or Truly Knowing?
Organizations can continue to operate in first gear with only a
handful of people strategically contributing to the business, or
they can tap into the deep reservoir of insights that are waiting to
be awakened in managers at all levels. Ensuring that managers are
leading with the three principles of strategy – differentiation,
focus and a system – will go a long way in raising the strategic
competency of your organization.
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