Strategic thinking is a focus on analyzing an organization’s past and current situations to make decisions for future actions. Most of the analytical techniques managers use to think strategically are frameworks that allow them to identify, clarify, and understand relevant factors in setting an organization’s future course. Such frameworks are invaluable to help one come to grips with an organization’s complexities. When one thinks strategically, one is engaged in a guided process that organizes disparate information into a coherent set of ideas that can be discussed among organizational members. Strategic thinking results in a prediction of how the world works and how an organization should be involved in that world. A good strategy focuses minds, organizational energy, resources, and actions.
Strategy is a journey from a current state to a future state, mainly by creating an organization’s position supported by a set of activities. The positioning refers to a market space for servicing customers or stakeholders. The activities are internal to the organization and include processes formed from a cumulative learning about how to do business.
Strategic thinking includes decisions about where to win and how to win in markets in order to maximize long term organizational value. Where to win includes decisions on positions in markets. How to win includes approaches to implementation. For example, an organization may choose to service customers in two different geographic markets, one that involves competing on price and another competing on specific product features. Each market is referred to as a business strategy that involves unique actions to achieve desired outcomes. Together, the two make a corporate strategy.
Once market decisions are made, the organization identifies, develops, and supports organizational competencies, strategic imperatives, and initiatives to implement the strategy. The strategic imperatives function as goals to increase the organization’s effectiveness. On-going organizational excellence is necessary, but not sufficient for gaining competitive advantage which is what makes strategic thinking essential to organizations. As strategic decisions are made and implemented, an organization engages in change management to move the organization from a departure point to a preferred level of functioning. This entire process is often referred to as strategic planning, yet this attribution is a misnomer. Planning is only one part of the entire process.
This approach to strategic thinking involves knowing the sources of information to inform choices and knowing how to manage the risks inherent in the decision-making process. Strategic decisions are relatively long-term and include commitments that are not easily changed. Strategic decisions involve big bets and thus, are adventures into the unknown; the future is difficult to forecast and uncertainty, and possibly ignorance, are prevalent.
To start a major strategic thinking effort, leaders need to identify a core challenge the organization is facing. This challenge identification avoids developing a strategy that is devoid of organizational reality. Challenges often come from various places such as external threats, new market opportunities, or failures within an organization such as poor organizational design.
The Defense Advanced Research Projects Agency[I] is an example of an organization that creates strategy from a challenge. “For more than fifty years, DARPA has followed a singular mission: to make pivotal investments in breakthrough technologies for national security.” DARPA also supports its strategy with unique capabilities. For example, “DARPA benefits greatly from special statutory hiring authorities and alternative contracting vehicles that allow the Agency to take quick advantage of opportunities to advance its mission. These legislated capabilities have helped DARPA continue to execute its mission effectively.”
The Importance of Strategic Thinking
Executives and analysts study strategies to explain sustained differences in the performance of organizations. Strategy is the closest to a determinant of success as is possible. Thinking strategically helps organizational members gain control over the organization and its future. Strategic thinking is also a means of learning about organizations and how people manage them.
Too often business literature is replete with what managers must do to be effective. Managers have been learning to play by rule books developed by consultants and researchers, many of which have been developed just to be viewed as new. Information is often over-simplified and summarized into algorithms or success formulas. This newness and simplification can fly in the face of proven management principles that have withstood the test of time.
Proven principles and frameworks increase the clarity of an organization’s critical thinking about the ways in which organizational members create and implement strategy by allocating resources to sustain or achieve competitive advantage. The creation and implementation processes are complicated because of the various types of uncertainties and tensions that create organizational risks. As allocation decisions are made, they are phrased to take into account these inevitable risks. For example, when deciding on a strategy one takes into account various sources of information such as market behavior, customer needs, the environment’s macro-economic conditions, and the organization’s competencies. As this information is reviewed and used to make decisions, organizational members are always cognizant of potentially missing information, the difficulties and cognitive biases inherent in decision making processes, and the politics involved with implementation. This awareness results in a constant critical review of information and processes.
The strategic thinking process is often not linear. Organizational members often confront several inevitable tensions that challenge executives to make decisive yet uncertain decisions. These decisions may involve deviations and dead-ends, at times. Here is a list of a few of the common tensions that cause some of this uncertainty:
- Centralized versus decentralized actions. Executives want to control the strategy process, yet realize the importance of employee knowledge, actions, and decisions unencumbered by centralized authority;
- Emergent versus planned actions. Strategic thinking does not culminate in a completed decision before organizational action. Organizations act to know. Organizational members try out tactics to determine if the strategy is viable, feasible, and sustainable;
- Stability versus change. Managers reduce risks by decreasing organizational variability. Yet, too tightly defined organizational processes can lead to stagnation and low innovation;
- Espoused versus actual strategy. Executives may tell others about what is the organization’s strategy. A prudent analyst would develop his or her own analysis and strategic definition to decide if the espoused strategy is the actual strategy as enacted by the organization.
General Electric’s Strategy: General Electric has been the focus of strategy discussions for decades. The company has been a management model as one of the few examples of a successful conglomerate, and a source of continued innovation. It has demonstrated how strategic thinking could create organizational value. Nothing seems to last forever. John Flannery took over the CEO position in late 2017 and was facing unprecedented challenges related to GE’s strategy. Among the challenges was for GE to decide which strategy creates profitable growth. Which businesses would it shed (Flannery stated that he would sell $20 Billion worth of businesses)? Which would get more investment (such as jet engines and health care). Flannery went back to the basic strategic decisions discussed in this brief introduction. Going back to basics is often a critical step when companies experience persistent decline is their core metrics.
In future blogs I’ll fill out these ideas and show how strategy can be an effective means to create organizational value.