In 1998, Loizos Heracleous clarified the relationship between strategic thinking and strategic planning. He called them as distinct but interrelated and complementary thought processes where thinking required a divergent thought process and planning a convergent one. I believe that strategic leadership is a combination of thinking, planning, doing, and reflecting. These four elements of strategic leadership are not only connected logically but keep folding into each other consistently which means that leaders also need to remain in the continuous loop of thinking, planning, doing & reflecting.
First step of business leadership
The primary assumption of this article is that all leaders who are good strategic leaders have a growth mindset. I say this because not only they know that they will fail but also because they are open to the process of failure. They view failure as a complement to success rather than its opposite and this helps them to take the necessary risks.
While leaders recognize the need of being strategic leaders not many are able to spend much time on developing this capability. This is generally because business as usual eats into the major chunk of their time. The other reason is that when it comes to leading most of them are more comfortable doing things rather than thinking about things. Not every leader creates the organizational strategy, yet everyone in a leadership role must ask oneself 3 questions.
1. Why are we doing what we are doing?
2. What is the logic of it?
3. What is my role in strategic thinking?
‘Not every leader creates the organizational strategy, yet everyone in a leadership role must ask 3 questions.’
This is because an organization cannot have one person (even if someone at an executive level) doing all the thinking and strategizing. The idea is to demonstrate strategic capability at all levels so that the strategy becomes scalable, repeatable, and replicable. If leaders approach strategy as a form filling exercise and pass it on as a ‘message’, they will neither be able to gain alignment nor get commitment from their teams to action the change required by the strategy. Consequently, it is necessary to create replicable thinking across leadership levels.
Laying the groundwork
There is a multitude of strategic models available, some of them quite complex, which can be great for thinking but not when it comes to planning. On the other hand, some are way too simple and do not do any good. Most of the models today are supposed to broaden a leader’s thinking. The gap, however, is that there is no connection between the strategy and the ultimate goals/objectives that leaders pursue. There is great respect for all models, but not all translate to the real work being done. These models help to broaden understanding/thinking but do not automatically translate to or offer a logical transition into organizational action.
A useful strategic model should enable a leader to look at the organizational landscape from three angles.
1. Value: What creates value for the business given certain conditions?
2. Challenge: What are the main challenges that prevent the business from creating value?
3. Sustainability: What are the assumptions that can shake the usual way of business?
For example, ZARA as one of the world’s most successful fashion retail brands and often credited with the concept of ‘fast fashion’ fashion’ has a simple strategy: ‘give customers what they want and get it to them faster than anyone else’. However, let us look at its current organizational landscape from the three aspects of value, challenge & sustainability.
What creates value for Zara?
1. Value: What creates value for ZARA?
a. Culture of customer co-creation: customer as the principal designer.
b. Distribution system capable of reacting to shifting market trends with speed and delivering ‘instant fashion’ using shorter lead times and lower quantities.
c. Heavy investments in information technology.
d. Utilizing groups instead of individual designers for the critical ‘design’ element.
2. Challenge: What are the main challenges may prevent ZARA from creating value?
a. Late entrant to mobile and e-commerce.
b. Balancing limitations of zero entry point for competition and a high substitution cost when it comes to customer preferences.
c. Shifting focus from price to quality merchandise.
d. Having a zero-marketing strategy.
e. Heavy investment in real estate through physical shopping spaces.
3. Sustainability: What are the assumptions that can shake ZARA’s usual way of business?
a. Aggressive pivot towards online selling as it considers a post-pandemic future.
b. Changing preferences of customers when it comes to both, quality and consumption, post COVID.
Once identified, the issues of values, challenge, and sustainability need to be looked at from different perspectives. Conventionally, these perspectives are market, competition, and customer. While market shapes the business, competition is but a reflection of market reality figured by out by someone else. These days, customers can also mean partners. For example, it is possible for a business to have a customer that is also a partner in service of another customer. By thinking about market, competition and customer leaders can start to think in terms of what shifts they need to make. Going beyond conventional perspectives, strong strategic leaders also look at the element of digital dynamic which is an all-encompassing term for changes that we are currently seeing. One of the terms that has also been used to describe these changes is ‘secular trends.’
Strategic thinking when done as a combination of a logical and a creative pursuit forces leaders to think in terms of business implications.
Connecting the dots between strategic rationale and strategic choices
Once leaders specify the value to create, the challenges to overcome and the means to sustain value creation, they must develop the logic to make this a reality. Let us look at how one goes about it in an organizational setting.
Work and therefore its flow, has three business functions - to create value, to deliver value and to monetize the value delivered. These 3 business functions form the strategy and when leaders embrace the strategy, they become the arbiters of value in an organization. A possible framework to craft the organizational logic is to think of implementing the value creation and value delivery logic through four nodes of business.
1. Capital: What seeds value?
Traditionally, capital has been mainly about physical assets & financial capital. Today, the definition of capital has expanded. IP, patents, and data have become the biggest forms of capital in the new world. They might or might not be encapsulated in technology. Therefore, technology is the scaffold for capital, but not capital per se. Another form of capital is a differential business model and disruptive innovation is the consequence of it. The last is network as a form of capital. If you look at ZARA’s strategy and evaluate how it seeds value, you will see that not only it has physical assets and a strong financial capital, but it also uses data and network (both with designers and customers) to seed value.
2. Work & People: How people contribute in unique ways?
When we say human capital we generally allude to this node of business. Since human capital is unique and differs from any other form of capital, it must be considered separately. It is the sum of skills, knowledge, and experience of the organization as a collective that produces economic value.
3. Processes: What is automated?
One can argue that value creation is the easiest when it comes to this node of business simply because it deals with known knowns. Leaders constantly look at what can be automated. This could be to increase efficiencies around time to market, quality, pricing, and convenience. In case of ZARA, it is the distribution system that can react to shifting market trends with speed and deliver ‘instant fashion’ using shorter lead times and lower quantities.
4. Experience: What do customers engage with?
Consider asking a leader, what are you delivering to your customer and what are you monetizing out of it? The answer would probably be, ‘We deliver something unique.’ It is this uniqueness that customers engage with and that which translates into experience forms the fourth node of business.
Having already looked at ZARA’s current organizational landscape from the three aspects of value, challenge & sustainability earlier in this article, it is easy to see how ZARA monetizes values across the four nodes of business. As you can see, the value creation and delivery can occur in tandem within this construct.
Sustainable organizations are created by strong strategic leaders
Strong strategic leaders sustain value creation and monetization across all four nodes in an organization. For example, while one leader might think of creating value in terms of ‘experience’ another might think in terms of ‘capital’. When leaders tap into the signals from the customer and the shifting landscape and feed them back into the four nodes of business, they become arbiters of value. This becomes their identity in the larger strategic agenda and catapults them beyond the loop of thinking of strategy as a paper exercise. As a result, knowledge also becomes a value, both for the leaders and the organization. Sustaining a profitable organization requires a mechanism that constantly works on two levers - how delivery system improves and how individuals improve. This mechanism is built on leaders creating a learning organization using systems thinking and developing the ability for individuals to think in more complex, systemic, strategic, and interdependent ways.
If, in words of Abraham Lincoln, ‘the most reliable way to predict the future is to create it’, then leaders must define the relationship between themselves as individuals and their organization in the context of the strategy itself. Those who think of strategy as a creative pursuit become arbiters of value in an organization. Applying the above strategic model enables them to look at their organizational landscape from three angles of value, challenge, and sustainability. This in turn helps them translate this logic into value creation and value delivery through four nodes of business: capital, work & people, processes, and experience.
1. Strategic Thinking or Strategic Planning: Loizos Heracleous; Elsevier Science Ltd. 1998
2. HBR Article: What Having a “Growth Mindset” Actually Means by Carol Dweck; 2016
3. HBR Article: The Failure Tolerant Leader by Richard Farson and Ralph Keyes; 2002
4. HBR Article: The Great Decoupling: An Interview with Erik Brynjolfsson and Andrew McAfee by Amy Bernstein and Anand Raman; June 2015
7. NWorX Article: Leader – A Designer, a Steward & a Teacher! By Shobhana Rao; 2020
8. The Fifth Discipline – Peter Senge