The economic turbulence of the second half of 2008 and all of 2009 has challenged the leadership capacity of many organizations like never before. Many organizations, both for profit and not-for-profit, saw revenues shrink dramatically, many in the range of 25-40%, or greater. In this environment many leaders and managers resorted to the primordial, survival mode. The immediate, knee-jerk reaction was to cut production, programs, and people. In this environment, the strategic horizon was instantly abbreviated to the next payroll period for many organizations. As a result of this economic upheaval, firms face a new reality, one of chaos, complexity and continuous change. To lead organizations through this new economic landscape it will be imperative for strategic leaders to think beyond the challenges of the next payroll period, month, quarter, year or even their traditional strategic planning horizon. It will be imperative that they think strategically. Chaos, Complexity and Change
Not many leaders will argue that the past two to three years have not been chaotic, complex and characterized by rapid change. At the turn of the millennium the terms sub-prime mortgage and credit default swaps were known by only a select handful of financial specialists. By September 2008, the impact of these two financial instruments threatened the financial stability of the world’s economy. The result was U.S. government bailouts to the tune of hundreds of billions of dollars. The term “billion dollar bailouts” was unknown to virtually everyone, yet the vast majority of individuals, organizations and their leaders have been affected.
What’s next? In his compelling book, The Extreme Future, futurist James Canton believes that there is plenty of chaos, complexity and “extreme change” on the horizon that will rock our world over the next ten to twenty years. Imagine a world in which 80% of all entertainment is downloaded from the Internet; 90% of consumers want tests to detect their genetic destiny; the ratio of women to men in the workforce is 2:1, and 60% of the individuals in the workforce are robots; 80% of consumers buy cars that only used renewable energy; 75% of Americans use performance enhancing drugs; 25% of Americans live past 100 years, and 80% of those are women. These are just a few of the possibilities that Canton forecasts for the not-too-distant future. How many of these or other seemingly radical forecasts are given any consideration in your strategic thought process?
Is Strategic Analysis Strategic Thinking?
Many of today’s leaders and managers have been educated to view strategic thinking as a process of comprehensive, sophisticated analysis of the internal and external environments in which their organizations must prosper. Most are familiar with and use a variety of strategic analysis tools developed over the last three decades. Porter’s Five Forces, Value Chain analysis, and BCG’s portfolio matrix are common tools that form the foundation of the contemporary strategic thought process. These tools are often augmented, if not supercharged, by multi-layered spreadsheets, Monte Carlo simulation and the application of Real Options Theory. While these tools and frameworks bring structure to the strategic thought process, it may also be the case that they limit leadership thought to very linear and limited conclusions. Mitzburg, Ahlstrand, and Lampel believe that strategic plans, evolving from this type of analyses, by their very nature promote inflexibility and place limits on the scope of insightful strategic alternatives. They further claim that while these plans are developed to establish clear direction, responsibility and stability, it is this same established direction and stability that inhibits strategic action in the face of chaos, complexity and change.
The foundation of most current thought processes is analysis of current and historic environmental data, e.g., sales data, cost data, demographic data, etc. Although these analyses can be thorough and comprehensive, providing insight into the circumstances and trends of today, they often say very little about tomorrow. The typical output of these analyses is an extrapolation of current trends into the future. Spiro Makridakis and Nicholas Taleb, experts in the field of statistical forecasting, pointedly claim that accurate forecasting is nearly impossible. They also provide us with a new, poignant Yogi Berra-ism: “the future is not what it used to be.” In this new environment, leaders run a very high risk when they assume that tomorrow will resemble today.
Irene Sanders agrees with Makridakis and Taleb in her book entitled, Strategic Thinking and the New Science, that leaders wrongly rely on quantitative data and analysis of today to provide information about a constantly changing environment of tomorrow. She further believes that leaders fail to see potentially disruptive events because they don’t know how to visualize the multiple complexities of the environment. Complexities like relationships, connections, patterns of interaction and subtle changes create the dynamics of the real world in which leaders make decisions. Sanders further believes that this failure can be avoided through the application of strategic thinking.
So, What Is Strategic Thinking?
If strategic analysis is not strategic thinking then what is? Sanders provides us with a very simple, yet powerful definition. To Sanders the two key components of strategic thinking are: 1) insight about the present, and 2) foresight about the future. Further, the key to both is understanding the dynamics of the “big picture” in which leaders make decisions that impact the future of their organizations. The development of strategic thinking necessitates a broader, more whole-systems-view, than currently applied strategic analysis can provide.
Developing insight of the present and foresight into the future takes more than analysis of specific data. Quantitative analysis is predominantly a left brain exercise. Sanders argues that insight and foresight require a comprehensive, whole-brain perspective, and are experienced through the more creative qualities of right-hemisphere thinking. For a visual thinker, as opposed to an analytical thinker, the ability to see and interact with a problem, issue or opportunity is the key to developing valuable insight and foresight.
Continued here: You've Survived, Now What? (Part 2)
Michael Petty is the managing partner of North Star Partners. North Star Partners assists companies in the areas of leadership development, strategic thought and application, and financial stewardship. He is also a doctoral candidate in the Strategic Leadership Program at Regent University, in Virginia Beach, VA, USA. Mike can be contacted at: mike.petty@north-star-partners.com