The ultimate cheat sheet on strategic thinking
Strategic thinking - the domain of senior management, or is it? Well, that is the sentiment that many people adopt, thinking that strategy is best left to those who know, and those who sit atop the organisation. Well, this is only half correct; while strategic planning is best left to senior management to plot, strategic thinking is everyone's domain! After all, most of us will have to deal with a couple of strategic decisions in our lifetime, and while the incidents are not many, their impact may well be huge. Hence, this article is not just for leaders, although it is a must-read for them, it is also one for all of us. In my work as a strategic thinking facilitator - I co-developed a course entitled Strategic Decision Making with Professors Jeanne Liedtka and Luda Kopeikina - I have found that people have limited understanding of strategic decisions, and worse, adopt a laissez-faire attitude towards their implications. That is very dangerous. So in this article, I have come up with the ultimate cheat sheet for everyone who is faced with a strategic decision, and who has to make the right decision every time.
1. Why do we want to apply strategic thinking?
Because we need to make the right decision every time. The more strategic the decision, the greater the need to be right (because the cost of a bad decision can be devastating!). In such cases, most of our decision-making tactics don't work. There needs to be a fundamental treatise to our thinking before we come to our decision. And that is why we need strategic thinking!
2. What makes a decision strategic?
Obviously, "Shall we eat at McDonald's or Burger King?" is not a strategic decision, correct? But what about, "Shall we buy a second car?" or "Should we invest in property in Malaysia?" These are more strategic, and therefore demands greater attention. So what makes the latter two more strategic than the former? Here are three prerequisites that determine strategic-ness of a decision:
A. It impacts more than one person or one group of people. If the decision impacts just one person, or one group of people, then it cannot be considered strategic. The more people are impacted by the decision, the greater the strategic-ness of the decision.
B. It has a high opportunity cost. The idea here is not the cost of the decision per se, but what else you could do with the money spent on this opportunity. If the opportunity cost is low, then it is not strategic. But if it is high, then more care needs to be put into the decision.
C. It has a future-impact. The further the decision will be felt in the future, the greater will be the strategic-ness of the decision.
Now the important thing to note that a strategic decision has ALL these elements; that is, it impacts more than one person or group of people AND it has a high opportunity cost AND its impact will be felt further in the future. The minute one element is missing, the decision becomes very much less strategic.
3. What are the elements of strategic thinking?
There are five elements as identified by Professor Jeanne Liedtka from the University of Virginia. These are:
A. Being intent-focused
B. Having a systems viewpoint
C. Thinking-in-time to understand the impact of past decisions and events
D. Reframing for new opportunities
E. Adopting the Hypothesis-Driven process
4. Which of these strategic thinking elements is most important?
By far and away, the most important of these elements is intent focused. If you know exactly what you are trying to achieve, then more than half the battle is won. The outcome of the decision is not as important as the intent that drives it. For example, would you purchase a $1million car and crash it at the race tracks? Most people will say no, and the outcome of crashing it would be a bad outcome. But what if the person's intent is actually in crashing the car? What if he wants to identify the traction limits of the car so that he can improve on it and make an even safer car? Would that have achieved the intent? Sure it would. So, buying a $1M car and crashing it can be a bad outcome or a good outcome depending on the person's intent. Hence, one can NEVER judge whether a decision was a poor out without understanding the person's intent. And truth be told, intents are seldom obvious, and sometimes, even unknown.
5. What is the impact of having a systems view of the situation?
All situations are part of a system, and systems are non-linear. However, logic is extremely linear, and therein lies the rub. There is always a limit to linearity in a system and once the system crosses that linear boundary, it fails to become predictable. For example, adding non-native fish in the Alpine Lakes in California caused more mosquitoes to breed there, despite the fish eating these mosquitoes. The reason is that the food web had been disrupted by the non-native fish, thereby killing off more mosquito-eating predators, hence increasing the mosquito population. These effects are counter-intuitive but they are not necessarily unpredictable, especially when using systems thinking. Systems thinking allows one to identify the drivers of the problem, and to zero in on the centres of gravity that will present a simple solution. And this is important in a strategic situation.
6. How do you apply systems thinking in strategic decision making?
A. Identify the system you are in
B. State your intent (increasing/decreasing something)
C. Brainstorm all the drivers of the system
D. Categorise the drivers as reinforcing or hindering the system
E. Connect up drivers with arrows
F. Identify the centres of gravity of the system (the drivers with the highest number of arrows)
G. Use your centres of gravity to form your solution
7. What are the keys to successful systems thinking?
A. Link your strategic intent to the outcome you seek from the system
B. Make sure you have completely brainstormed the drivers before moving on to the next step
C. Similarly, make sure you have linked all the drivers up before moving on to the next step
D. Connect drivers only with uni-directional arrows
D. Do not pre-empt your centres of gravity; identify them once you have completed all interconnections
E. Seek the most creative way to achieve the outcome of your intent from the CG
8. What is thinking-in-time?
Confucius said, "Study the past, if you would divine the future." Thinking-in-time is the impact of past decisions and actions on our system. As our current situation is the sum total of the decisions that brought it about, understanding how we got to where we now are requires us to look at the decisions that brought us here, and with hindsight, see if the decision then was less than perfect. And then, from that vantage point, to see if there is a need for us to now adjust the decision.
9. Why is there a reframing element in strategic thinking?
Strategic thinking is a creative process, and in order for us to be more creative, we need to see things differently. After all, we cannot be seen to be creative if we are constantly doing the same things every time, can we? Hence, by shifting our perspectives, by viewing things differently, we might chance upon an opportunity to make a greater impact in our decision. Reframing is key to finding a new and novel solution.
10. How do we reframe?
Liedtka proposes using the following 7 perspective-shifting frames (the terms are also hers):
A. Diving deep -> by taking a mass product and finding a unique, differentiated value (think Montblanc and how they redefined the writing instrument)
B. Swimming for the Surface -> (the opposite of Diving Deep) by taking a customised product and finding a market for it (think SAP and how they began with a product in search of a market)
C. Swimming Sideways -> expanding your product into adjacent customer needs (think the iPhone, and how Apple tacked the phone onto their iPod)
D. Bundling -> what other products and services can be put together to offer greater value? (think the multifunction machine that bundled printer, scanner and fax machines together)
E. Finding White Space -> what other business units in our company can we bring together to offer a solution in white space?
F. Networking -> what other companies can we partner with to offer a differentiated solution (or to reduce redundancies)?
G. Starbucking -> what experiences can we offer to our customers?
11. What are the best practices for reframing?
A. Work all 7 frames; don't pick or choose
B. Not all frames might give a new idea; but don't give up on it until you have worked the frame
C. It is okay to come up with similar ideas for different frames (these are more robust ideas that can form the cornerstone of your solution)
D. Come up with as many ideas as you can per frame
E. Do not censor or censure your thinking; just put down your ideas
F. Do this in a group to get a variety of ideas
G. Work this as a teambuilding activity
12. What is the hypothesis-driven process?
You know the scientific method? Well, it is the same. In the hypothesis-driven process, we understand that all plans are basically a hypothesis, and as we work the plan, we are basically testing the hypothesis. And as with the scientific method, if the hypothesis is proven wrong, we dive into what went wrong, tweak the variables, and formulate a new hypothesis. As such, the hypothesis-driven process is one that accepts "failure", understanding that the ultimate failure is when we stop finding out what's really happening (that is, when we give up!)
13. Why is the hypothesis-driven process central to strategic thinking?
This is because the world is in constant flux, and what used to work before might not work today. And that timeline can be so short, such that a solution can be outdated even within a week! With such variability, we need to be more sure before we pour in more resources. Managing risk is a key element of strategic thinking, and we do that with the hypothesis-driven process. Don't make a decision that might cost you the roof over your head (unless of course, you have another house you can move into!)
14. How do we apply the hypothesis-driven process in strategic thinking?
If you have the time and resources, then roll out different prototypes to the market and let it tell you which works and which does not. This is market testing, and is the best form of testing. Get your customers to work with you, and develop a co-created solution for the market. When this is not possible, perhaps for proprietary reasons, then you can apply scenario thinking. In scenario thinking, lay out all your options, and identify the assumptions for each of them. Then, we build the best case, worst case and most-likely case scenarios using your assumptions. In the best case, it is the scenario when ALL your assumptions are RIGHT. In the worst case, it would be one where ALL your assumptions are WRONG. Finally, the most-likely case is, as the name implies, the most likely. It does not need to be in the middle of the two scenarios. Finally, after building all your scenarios, assess the risk of each of your options and choose the one that is most balanced.
So there we are... the ultimate cheat sheet on strategic thinking. This is such an important topic that all leaders and managers must learn it. Not just for themselves to apply, but also in helping their subordinates grapple with decisions that they cannot handle themselves. But this is NOT just for leaders and managers, because each of us will ultimately face a strategic decision ourselves, and under a constantly-changing environment, our rudimentary decision making methods may not help. This is where we separate the wheat from the chaff. Strategic thinking is the key to making the right decision every time!
As all cheat sheets go, they are only a snap-shot, and will not be able to offer you the nuances of strategic thinking. For that, you need to dive deeper and intimate yourself with the background, the logic, the processes. For that, you will have to sign up for our online course, Strategic Decision Making. Mind you, it is not a course for the faint hearted, and it will not work for those who don't want to work on it. But for those select few who feel that you have the mental stamina, the wherewithal, to dive into the material, we have this special offer for you... if you complete the online course with minimum 80% passing rate for all modules, we will comp a FREE certification course for you.
What does the certification course offer?
(1) your chance to train the Strategic Decision Making workshops with our company
(2) an opportunity to run your very own coaching and training consultancy using these methodologies
(3) apply traits-based tools to enhance learning at the individual and group levels
(4) generate a secondary income stream for yourself
So if you think this is something you might want to learn, and ultimately, help other people with, sign up for our Strategic Decision Making course. At only $255, it is a bargain! Simply click on the button below and get started...