Strategic Learning E-Book

Willie Pietersen

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 322

Veröffentlichungsjahr: 2010

Beschreibung

How to use Strategic Learning to rapidly respond to change and gain a sustainable advantage over your competitors What's even harder than creating a breakthrough strategy? Making it stick. As companies are fighting to survive in a tough economy, this new book by Willie Pietersen demonstrates the power of the Strategic Learning process, a four-step dynamic cycle guaranteed to create and sustain winning performance. Adopted by a wide range of corporations and not-for-profit organizations, the Strategic Learning process builds on eight years of practicing, adapting and honing the original concepts Pietersen first introduced in Reinventing Strategy to explain how organizations can generate superior insights about their customers and competitors, craft a Winning Proposition, focus on a vital few key priorities, create buy-in throughout the organization and achieve success - again and again. * Teaches organizations to make smarter decisions that help them win customers and earn superior profits * Explains how to instill a culture of openness, learning, and courage that can face and respond to the constantly changing business environment * Is a tool that can benefit leaders at all levels, in organizations both large and small, global and domestic, for-profit and not-for-profit * Author Willie Pietersen, a former president of Tropicana and Seagram USA, is a professor of management at Columbia Business School, and the author of Reinventing Strategy, from Wiley Strategic Learning shows you how your business or nonprofit organization can develop better, more effective strategies for long-term competitive advantage.

Leseprobe

Table of Contents

Title Page

Copyright Page

Acknowledgements

Introduction

The New Competitive Context

Winning in the New Environment

Reinventing Strategy with Strategic Learning

Why This Book?

Getting to Excelling

PART I - What Every Organization Needs to Know about Strategy

CHAPTER 1 - The Real Job of Strategy

What Is Strategy?

What Key Questions Must Strategy Answer for Us?

Choice-Making in Action

Strategy and Planning Are Different

Closing the Doing/Excelling Gap

CHAPTER 2 - Defining Competitive Advantage

Mind the Gap

Stretching the Elastic Band

GM’s Race to the Bottom

Value Leadership through a Winning Proposition

What’s Your Winning Proposition?

The Moment of Truth

PART II - Applying Strategic Learning to Create an Adaptive Enterprise

CHAPTER 3 - Strategic Learning

Do You Have a Robust Method?

What Were We Thinking?

The Theory of Natural Selection

Complexity Theory

Learning Organizations

Strategy’s New Mission

The Five Killer Competencies

The Strategic Learning Cycle

What We’ve Learned from Deming

Building Capability through Deliberate Practice

CHAPTER 4 - Learn

The “Sense and Respond” Imperative

Learning through the Situation Analysis

Analyzing Customer Needs

Who Are Our Stakeholders and Why Do They Matter?

Analyzing Competitors

Interpreting Industry Dynamics

Taking a Broader View

Facing Your Own Realities

Pulling Together the Situation Analysis

Winning the Battle for Insights

Doing a Great Situation Analysis: The Rules of Success

CHAPTER 5 - Focus

Making Your Strategic Choices

The Parmenides Fallacy

Value Proposition versus Winning Proposition

Where Does Your Vision Fit In?

Delivering Superior Profits

The Three Bottom Lines

Your Key Priorities

How the Girl Scouts Did It

Deciding What Not to Do

CHAPTER 6 - Align

Leading a Journey

The Golden Rules of Successful Execution

Closing the Gaps

The Business Ecosystem

Changing an Organization’s Culture

Avoiding the Values Trap

CHAPTER 7 - Overcoming Resistance to Change and Driving Momentum

Dealing with the Sources of Resistance

The Lessons of the Sigmoid Curve

The Curse of Success

Launching the Second Curve

Maximize Participation

Generate Short-Term Wins

Deal Directly with Resisters

Set a Shining Example

CHAPTER 8 - Translating Your Strategy into a Compelling Leadership Message

What Is Leadership?

Building a Cathedral

Commander’s Intent

Who Are the Leaders?

Developing Your Leadership Message

The Power of Storytelling

The Need for Repetition

CHAPTER 9 - Execute

Learning through Experimentation

Learning from Others

Learning from Mistakes

Experiential Learning: The After-Action Review

Strategic Learning 365 Days a Year

PART III - Integrating Strategy and Leadership

CHAPTER 10 - Leading through a Crisis

Dealing Successfully with the Unexpected

Learning Your Way Out of a Crisis

Building Readiness

Seizing Opportunities during a Crisis

The Human Dimension

CHAPTER 11 - Becoming an Integrated Leader

The Three Domains of Leadership

Articulating Your Leadership Credo

The Quest for Self-Knowledge

The Lifeline Exercise

Applying Strategic Learning to Yourself

CONCLUSION

APPENDIX

NOTES

INDEX

Copyright © 2010 by William G. Pietersen. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Pietersen, Willie.

Strategic learning : how to be smarter than your competition and turn key insights into competitive advantage / by Willie Pietersen. p. cm.

Includes index.

eISBN : 978-0-470-60982-8

1. Organizational learning. 2. Strategic planning. 3. Leadership. 4. Knowledge management. I. Title. HD58.82.P.4’038—dc22 2009042890

ACKNOWLEDGMENTS

Responsibility for the content and ideas in this book is entirely my own. However, I could not have written it without the dedicated and enthusiastic help from a great “supporting cast.”

First of all, my thanks to Catherine Fredman for her expertise in helping me refine and polish the manuscript; for reminding me along the way about the importance of examples and stories; for her willingness to challenge me in the interests of providing clarity; and for bringing her keen professional eye to the organization and structure of the book.

Credit goes to my two accomplished reviewers, Jeff Kuhn and Karl Weber. Jeff and I often work together on Strategic Learning workshops, and both Jeff and Karl helped me on my first book, Reinventing Strategy. The two of them provided what I value most—thoughtful and unvarnished feedback—and the book is undoubtedly better for it.

Amy Deiner from Columbia Business School has been my tireless researcher. Amy attended diligently to the business of fact-checking and locating source reference material, and she brought a discerning intelligence to this important assignment. Thank you, Amy.

Thank you Karen Fisk for bringing an eagle-eye, and great sensibility to the exacting task of proofreading.

I owe a debt of gratitude to my literary agent, Judith Ehrlich. As she did on my first book, Judith caringly and methodically helped me navigate through all the contractual aspects.

Richard Narramore, senior editor at John Wiley & Sons, Inc., provided just the right blend of constructive guidance and creative freedom, and he did so with unfailing courtesy. Richard, production editor Lauren Freestone, and all the members of the Wiley team have been a pleasure to work with.

Finally, I’d like to say a special thank you to my executive assistant, Aimee Chu, for her hard work, loyalty, and dedication. It was Aimee’s often thankless task to ensure that the manuscript was correctly formatted and to keep track of the various iterations of the text so that everything was efficiently organized. Aimee patiently took care of the hassles so that I could concentrate on the writing.

INTRODUCTION

The difficulty lies not in new ideas, but escaping the old ones, which penetrate every corner of our minds.

—JOHN MAYNARD KEYNES

No industry is immune from continuous change. Name any product or service and I’ll guarantee that if it had a long lifespan, that lifespan is getting shorter. If it had a short lifespan, it is even more compressed. No barrier to competition remains safe.

The Army War College in Carlisle, Pennsylvania, often called “the school for generals,” has coined an acronym for an environment in flux: VUCA, for volatile, uncertain, complex, and ambiguous. The term also applies to today’s business landscape. It’s not only that the specific cyclical and structural elements of today’s environment are different, but that they are more volatile, uncertain, complex, and ambiguous than ever before.

Beyond the shock to the system of the recent financial crisis and deep recession that followed—foreseen by hardly anyone—there are deep, ongoing mutations that are revolutionizing the way business is done. The list of changes is a familiar one: profound demographic shifts; the Asian economic advancement; the development of resource nationalism; the growing influence of nongovernment organizations (NGOs), and regulatory changes in banking, energy, healthcare, and food safety. The list goes on. Abetting all these forces are two overarching factors that are producing a transformative impact in their own right: the rapid development of information technology and globalization, and the massive power of these two forces working together.

The consequences of this VUCA environment are being felt by everyone. The shelf life of any advantage is constantly shrinking; competitive intensity is escalating; pricing and profit margins are under pressure; and there is a premium on speed, flexibility, and innovation. In industry after industry that I work with I hear the same refrain: The environment is getting tougher. Global competitors are everywhere. They are faster, more innovative, and more efficient. It’s harder than ever to find a competitive advantage; even harder to sustain it. As one CEO in the healthcare industry said to me, “The era of easy money is over. We can no longer rely on product superiority alone. We have to master operational effectiveness, too.”

The result is, we now have to play an “and” game. You no longer have a choice between being a low-cost operator or a great innovator; you have to excel at both low costs and superior customer solutions. If you dwell just on superior customer benefits, then lower costs and a more efficient supply chain will kill you. Conversely, if you focus just on lower costs but don’t pay attention to the needs of customers, that will kill you.

The aim of this book is not to rehash the grainy details of the various changes that are happening around us. The particulars of these will vary from industry to industry. Rather, my purpose is to help clarify the essential nature of this new environment, and then to address what I believe is the larger question: What should be our response to it?

The New Competitive Context

To understand the fundamentals of today’s competitive landscape, it helps to view it in an historical context. When we examine the long-term trends, we can see four big revolutions, each of which ushered in a new era, with totally new challenges and rules for success: the agrarian age, the industrial age, the information age, and our current era—what writer and trend-watcher Daniel Pink has called the “conceptual age” (see Figure I.1).1

Figure I.1 History’s Four Big Revolutions

Note the pace of change. The agrarian age lasted almost 10,000 years, the industrial age 200 years, and the information age 50 years. The conceptual age is only 10 years old.

The change from the information age to the conceptual age has been a radical one. The information age concentrated on the volume and ubiquity of data. It turned information into a commodity, which has become abundant, cheap, and rapidly transferable. In the conceptual age, our source of competitive advantage is no longer finding more information; it is making sense of the overwhelming volume of information already available to us. Sense-making, creativity, and the ability to synthesize, not just analyze, have become paramount.

To succeed in this new world, organizations will need to manage a fundamental shift to a different leadership model, as shown in Figure I.2. Competition in every arena and on every level is affected by these changes.

Whenever the environment shifts in a dramatic way, some species become extinct, while others adapt and thrive. Adapting and thriving in these changing competitive circumstances is going to be extremely challenging and will produce a whole new set of winners and losers.

Figure I.2 Fundamental Shifts

Winning in the New Environment

What does all this mean for organizational leaders? The answer is the same whether we are engaged in developing national policy, military campaigns, or strategies for commercial or not-for-profit enterprises; and for organizations large and small. Our key leadership challenge is to build adaptive organizations—those with an ingrained ability to make sense of the changing environment, and then rapidly translate these insights into action.

This thought is not new. In fact, it has become something of a rallying cry. We hear it repeatedly in books, speeches, and business articles. But the rhetoric is easy. What has been missing is a practical process to translate this transforming idea into practice.

Reinventing Strategy with Strategic Learning

The way that work gets done in organizations is through systematic processes. Concerted action is not an ad hoc affair. And it certainly does not result from simple exhortations, no matter how often or loudly they are repeated.

The processes we use must be fit for purpose: They must do the job they are designed to do. The old, ritualistic, numbers-based planning methods no longer work today. They were designed for a different, more static era. They are, simply, no longer fit for purpose. In a VUCA environment, our emphasis must shift to insights, ideas, and ongoing renewal. What is necessary is a dynamic method for creating winning strategies and renewing those strategies as the environment changes. We must change our approach from “strategy as planning” to “strategy as learning.”

Eight years ago, in my first book, Reinventing Strategy, I laid out a process called Strategic Learning, a practical leadership method for translating these ideas into action. Strategic Learning is a learning-based process for creating and implementing breakthrough strategies. But unlike traditional strategy, which aims at producing one-time change, Strategic Learning drives continuous adaptation.

As shown in Figure I.3, the process has four linked action steps—Learn, Focus, Align, and Execute—which build on one another and are repeated (as a fifth step) in a continuous cycle. In essence, Strategic Learning is an “insight to action” model. The leadership challenge is to repeat it over and over, so that an organization continuously learns from its own actions and from scanning the environment, and then modifies its strategies accordingly. Strategic Learning combines strategy, learning, and leadership in one unified process.

Figure I.3 Strategic Learning: The Leadership Process

The underlying ideas and tools of Strategic Learning have since been applied in organizations as wide-ranging as ExxonMobil, Ericsson, DePuy, Novartis, the Federal Home Loan Bank of Atlanta, the Girl Scouts of the USA, and Henry Schein, Inc., among others. The leaders I have worked with feel that the process and the concepts that have inspired it are intrinsically compelling and have made a real difference to their organizations. The Strategic Learning methodology has also become the basis for how strategy is taught at Columbia Business School’s Executive Education programs.

Why This Book?

The past eight years have served as an “action learning” laboratory. Through my seminars and consulting work, there have been multiple opportunities to apply the principles of continuous learning to the Strategic Learning process. It has been tested in the white heat of the action arena, subjected to intellectual scrutiny and debate by organizational leaders and my colleagues at Columbia University, and assessed in the light of my own experience as a practitioner. Both I and the organizations applying the Strategic Learning process have discovered how to derive better and better results from it. We have learned through trial and error what works and what doesn’t, and which concepts and tools can best help us adapt and excel in the evolving external environment in which we operate.

That’s good, because compared to eight years ago, there is a greater need than ever for a process that enables organizations to make sense of and adapt to the VUCA environment, and do that better than competitors. It also is a healthy reminder that as we keep raising the bar on performance, we must address two gaps: The first is from knowing to doing. That gets us going, but doesn’t carry us far enough. The second, and even more significant gap, is from doing to excelling. Addressing the doing/excelling gap is a journey that never stops.

It is in the spirit of our mutual pursuit of excellence that I write this book. In service of those who are already applying Strategic Learning, I have now incorporated all my latest thinking, enriched by fresh examples and more extensive practical guidelines, which I hope will significantly enhance your effectiveness. For those who are new to Strategic Learning, this book will, I hope, introduce you to a set of ideas that you will find valuable and timely—ideas that you can readily translate into practice. In service of both groups of readers, I have pulled everything together in one place so that it will not be necessary to read the first book in order to get full value from the second.

Getting to Excelling

In the journey from doing to excelling, six key lessons, which I will emphasize in this book, have emerged about the effective application of Strategic Learning:

1. To find great answers, we must discover great questions. It is not possible to address the changing environment with all the right answers. The real challenge is to find the right questions. In fact, producing answers without the right questions can be downright dangerous.

Entrenched answers create fixed mental models. They become a substitute for critical thinking. And, inevitably, they—and the organizations clinging to them—get overtaken by events. The right questions force us to challenge our underlying assumptions. They unfreeze us and open new vistas. Good questions open the doorway to insight; they serve as our portals of discovery. They help us adapt to change.

2. Simplicity is the springboard for success. I constantly challenge and cajole executives to express their strategy in as few words as possible, and then pare it down further to its absolute essence. When I hear the response, “It’s more complicated than that,” what I think is, “You don’t understand it well enough.” When you really understand something, you can simplify it. When you don’t, you complicate it.

Simplicity is not a short cut. It is hard work that goes to the very heart of effective leadership. Organizations cannot follow complexity. They are paralyzed by it. The task is to translate your strategy into a simple, compelling leadership message that will win the hearts and minds of all your people in support of what needs to be done. Most important, simplicity creates an intense focus on the right things, the crucial ingredient for success.

3. Strategy means thinking from the outside-in. What happens when co-workers get together for a friendly conversation? Most of the time, they talk about themselves: who’s who in the zoo, who’s doing what to whom, why so and so was promoted or not promoted, and so on. It’s all about us—our team, our organization, our culture, our bosses. This is a natural state of affairs. But organizations that aim to become adaptive have to get used to an unnatural act: outside-in thinking.

Outside-in thinking means the conversation starts with the competitive environment outside the organization: Who are our customers? What do they value most? What are our competitors doing? What are the key industry trends that might affect how we make money? Thinking strategically means thinking with that outside-in mind-set. Functioning strategically means making decisions based on that mind-set.

The leap from knowing and doing to excelling takes place in the space between the challenges of the external environment and our internal abilities to meet them.

4. The point of strategy is to win the battle for value creation.

There is a great deal of confusion about the key deliverable of a strategy. The result is that the outputs are often bland, all-embracing statements—meandering lists of what the organization plans to do. They amount to one-size-fits-all declarations that could be equally well applied to an organization’s competitors.

Such pronouncements are useless. In a competitive environment, everything is comparative. Customers have choices. The question is: Why should they choose to do business with you? The same applies to investors: Why should they decide to give you their money? Competing successfully means providing a margin of difference in the value you offer these two key stakeholders.

In short, strategy must define how an organization will win the competition for value creation. This means creating greater value for its customers and investors than the competing alternatives. Without a clear statement of how it will achieve such an aim—what I call a Winning Proposition—an organization cannot claim to have a strategy.

5. Strategy is everyone’s job. I am often asked, “Whose job is it to create the strategy for an organization?” The answer that is expected is, “The top leadership, of course.”

That answer is wrong. It is based on an outdated “command and control” philosophy. The truth is that it is everyone’s job. The senior leaders, of course, have a crucial role: They must define the direction and strategic goals of the organization. But that’s not where it stops. That’s where it starts. It is the leadership responsibility of each manager at every level in an organization to create a clear line of sight to the organization’s overarching goals, and then to translate those into a winning strategy for his or her domain of responsibility.

The logic is simple and unforgiving. It’s a matter of strategic cohesion. If an organization is to win at value, then every subgroup in that organization must contribute to that value generation, or simply be a cost drag. There’s nothing in between.

6. Strategy and leadership are essential parts of each other. Strategy does not have a life of its own. It is an inseparable part of leadership.

Leadership comprises three key domains:

• Intrapersonal leadership—leadership of self

• Strategic leadership—leadership of the organization

• Interpersonal leadership—leadership of others The key to success is integrated leadership, ensuring that all three domains are working hand in hand, each one supporting the others. When any one is missing, the others cannot succeed.

All these lessons add up to one overarching epiphany: the importance of the human dimension. Of course, this is not news. Leaders constantly declare that “our people are our strongest asset.” I ran companies for 20 years and know from personal experience that the difference between commitment and mere compliance is monumental. But the more I explore the potential of the Strategic Learning process, the more I am struck by the crucial role of the human spirit. It is the governing factor in the success or failure of any organization, or indeed any individual.

Napoleon, who is acknowledged to be the most successful military leader in modern history, was supposedly asked which was more important: material or spiritual resources? His answer: spiritual resources—by a factor of three to one. I don’t know whether the story is apocryphal, but from my own experience running large organizations, I believe the ratio is absolutely right. In the final analysis, our leadership mission is to bring out the best in ourselves and each other. If we can’t win hearts and minds, the greatest strategy in the world won’t go anywhere, let alone help our organizations advance from knowing to doing to excelling.

PART I

What Every Organization Needs to Know about Strategy

CHAPTER 1

The Real Job of Strategy

Our lives are the sum of the choices we make.

—Albert Camus

Organizations create their futures through the strategies they pursue. These strategies may be developed in a thoughtful and systematic way or allowed to emerge haphazardly in a series of random, ad hoc decisions made in response to daily pressures. But one way or another, the strategy a company follows—that is, the choices it makes—determines its likely success. And in today’s fast-changing environment, the ability to generate winning strategies, develop the tools to apply them, and mobilize employee commitment—not once but repeatedly—is more important than ever.

Yet astonishingly few executives, let alone the rank and file, are able to explain their company’s strategy in a clear and compelling way. The trouble is that strategy is a largely misunderstood and misapplied concept. Somehow, there’s a notion that strategy is complex and mysterious, something best left to gurus and experts. Actually, the opposite is true. It’s not at all arcane. In fact, it’s dead simple, and therein lies its power.

It’s puzzling that so few companies have devoted sufficient time or energy to clarifying the nature of strategy or to creating an effective, organization-wide method for developing winning strategies. Instead, many of them plunge directly into strategy formulation on impulse, without defining a clear process. It’s as if the manager of an auto assembly plant were to dump a load of parts onto the factory floor and tell the workers, “Here, make some cars,” without defining a manufacturing process with the end product in mind.

The penalties for this lack of strategic leadership are considerable. A survey of 336 organizations by Right Management Consultants found that two-thirds of employees do not know or understand their company’s strategy.1 A poll of 23,000 employees highlighted by Stephen Covey paints a similarly disturbing picture:2

• Only 37 percent said they have a clear understanding of what their organization is trying to achieve, and why.

• Only 20 percent were enthusiastic about their team’s and their organization’s goals.

• Only 20 percent said they had a clear “line of sight” between their tasks and their organization’s goals.

It is hard to imagine how such companies can hope to survive and thrive with this lack of clarity and employee alignment on strategic direction. In fact, the evidence shows that the ability of organizations to maintain success in our VUCA (volatile, uncertain, complex and ambiguous) environment is inexorably declining. A survey of Fortune 1000 companies since 1973 found that between 1973 and 1983, 35 percent of the top 20 names were new (see Figure 1.1). The number rose to 45 percent in the following decade, and between 1993 and 2003, shot up to 60 percent.3

This state of affairs suggests that one of the highest hurdles facing organizational leaders today is their inability to mobilize their companies behind strategies that create and sustain competitive advantage.

Figure 1.1 Fortune 1000 Companies: Percent New in Top 20

Source: Edward E. Lawler III and Chris Worley, Built to Change: How to Achieve Sustained Organizational Effectiveness (Jossey-Bass, 2006).

The primary aim of this book is to offer a practical and proven method for creating and implementing winning strategies, and renewing those strategies as the environment changes. But this process—Strategic Learning—is not just a step-by-step ritual. It is inspired by a set of crucial underlying ideas. The key to the successful application of Strategic Learning is to understand and mobilize these key concepts.

To clarify our thinking, we need to answer two important questions:

• What is strategy?

• What key questions must strategy answer for us?

Let’s examine each of these questions.

What Is Strategy?

Aristotle said, “We do not know a truth without knowing its cause.” Following Aristotle’s logic, the best way to understand the real meaning of strategy is to understand its origins. Where does it come from? Why does it exist? What is so compelling about it?

What gave birth to strategy was the need to respond to two inescapable realities: the fact that we have limited resources, and the inevitability of competition. These stark realities force organizations to make choices on how best to use their scarce resources for the achievement of competitive advantage. The purpose of this choice-making is to create an intense focus on the few things that matter most to an organization’s success.

Strategy is, simply, the sum of an organization’s choices about where it will compete, how it will create superior value for its customers, and how it will generate superior returns to its investors. In a world of limited resources, a company that tries to be all things to all people, with no specific focus or direction, will soon squander its resources and either fall behind its competitors or go out of business.

Consider this: If you had unlimited resources, there would be no requirement for a strategy because there would be no need to decide what not to do. You could eliminate all risk by endlessly piling on resources, just in case your choices were wrong. You could survive indefinitely by throwing time and money and people at your problems until your obstacles and competitors are utterly overwhelmed. But in the real world, there is no such thing as unlimited resources. Even the world’s greatest corporations have only so much cash, so many employees, so many factories.

The way that competition expresses itself is through the interaction of choices in the marketplace. The smartest choices, well executed, will win the game.

What Key Questions Must Strategy Answer for Us?

What do the key deliverables of strategy look like? If it is to create value, strategy must provide a good return on the time and effort we put into it.

A successful strategy is not just a matter of open-ended choice-making. It is choice-making in service of answering some specific and very important questions. The answers to these questions will determine your destiny.

To clarify what these questions are and why they are important, let’s go back for a moment to the origins of strategy. Strategy was originally a military concept. The word is derived from the Greek strategia, meaning “generalship,” which itself is compounded from two words, stratos, meaning “army,” and agein, “to lead.” (Note the implicit connection between strategy and leadership, a theme to which I’ll return throughout this book.)

Now let’s indulge in a little military role-playing.

Imagine that you are the leader of a country—let’s call it country A. Assume that for good and sound reasons, country A is faced with the unpleasant prospect of going to war against country B. You have asked your experts to study and compare the resources available to your country and country B. There are disparities, relative strengths and weaknesses, that call for a really smart approach to conducting this war.

Faced with this challenge, you call a cabinet meeting and ask your most senior general to be in attendance. You discuss the relative resources available to your country and country B. The general assures you that he has done his homework on this. Now you ask the big question that every good general must be able to answer: “General, how will we win?”

But if he is a good general, he will refuse to answer your question, until you have provided a clear answer to his question: “What is your aim?” What do you want to achieve by going to war? Is it regime change? Is it disarmament? Is it nation-building? The point is, you can’t figure out how you will win until you define what kind of contest you are involved in.

Let’s translate this role-play into a business context. Of course, there are differences between warfare and business strategy. War is a matter of life and death, and wars are typically zero-sum encounters. But this military example clarifies some key principles about any kind of strategy.

The first and most crucial point is that a strategy must define how you will win. This concept is not exclusive to warfare. On this point we must be clear: Winning in business means winning at value. That is a central theme of this book.

Figure 1.2 The Key Questions Strategy Must Answer

Second, the military role-play clarifies the questions that must be asked in the process of strategic choice-making for any enterprise. It is the answers to these questions that make your strategy specific, clear, and actionable.

Here, then, in Figure 1.2, are the key questions every organization must answer in the process of creating a strategy.

Military analyst Antoine Jomini writes that strategy is the concentration of mass upon decisive points. It’s the same in business. Answering these questions forces an enterprise to make its critical strategic choices and thereby harness the power of concentration. The ultimate purpose of a strategy is to create clarity of focus. This, in turn, is the essential platform for leadership effectiveness.

Choice-Making in Action

The contest playing out between Boeing and Airbus in the commercial aviation business provides a dramatic example of how each company has dealt with the challenges of high-stakes choice-making.

Boeing and Airbus manufacture aircraft for commercial carriers such as Continental Airlines, United, Singapore Airlines, and others. They compete against each other in the same key markets and with a similar portfolio of planes. Measured by size, range, fuel efficiency, and operational reliability, for example, there is not a major difference between a Boeing 737 and an Airbus A320. As the new millennium dawned, each company looked for a development that would conclusively give it a competitive advantage.

Boeing had actually captured such an advantage decades before, when it introduced the large, more comfortable, 747. The Concorde, although a financial disaster, was another plane that clearly changed the flying experience for passengers, persuading an affluent group of people to choose British Airways or Air France just to enjoy the benefits of this supersonic plane.

Now, both Airbus and Boeing were determined to develop an operationally efficient, more passenger-pleasing aircraft that would have the same disruptive qualities as the Concorde. Boeing actually called this futuristic plane “the game changer.”

The crucial question each company faced was, in a game of bet and counterbet, which particular choice would eclipse the other player? Should it be a large-capacity plane best suited to the hub-and-spoke market, like an updated 747? Or should it aim its new entry mainly at the point-to point routes that avoid connecting between busy airport hubs? Which segment was likely to have the most growth in the future, and what kind of plane would create the greatest value for the airlines and their customers in that segment? Of course, these alternatives have certain elements in common, but in terms of their core benefits they are different, and therefore so is their likely growth potential.

Boeing has placed its bet on the point-to-point market. Its new entry will be the 787, designed to carry about 250 passengers, which it has dubbed the Dreamliner. With a new generation of fuel-efficient engines and a skin made largely from carbon-reinforced plastic, the plane represents an exciting technological breakthrough. Carbonfiber composites such as this routinely strengthen tennis rackets and parts of fighter planes, but had never been used on such a large scale. The 787’s transformational technology enhances the customer experience with improved air quality inside the cabin, and bigger windows, as well as, according to Boeing, making the plane 20 percent less expensive to operate and a third less expensive to maintain than its competitive equivalents. The list price is stated to be about $150 million per plane.

Airbus, meanwhile, placed its bet on the hub-and-spoke market with the huge A380. Carrying approximately 555 passengers—more than 100 over the Boeing 747 passenger limit and twice the number of the Dreamliner—the A380 is configured to incorporate lounges and stratospheric shopping malls to relieve the tedium of long flights, and its enormous size promises significant efficiencies in operating costs. The list price is close to $300 million per plane.

This case illustrates the challenges of choice-making in the development of a strategy. Let’s put ourselves in the shoes of Boeing and Airbus at the time when they had to make these decisions. The development costs were reportedly calculated at $8 billion for the Dreamliner and $12 billion for the A380 before cost overruns (which we know in retrospect have been considerable at both companies). Based on these parameters, which was the smarter choice? Wouldn’t it be nice if these companies had unlimited resources and could just do both? Obviously, that was not possible. A choice had to be made. And that epitomizes the issue strategy must address: We can’t do it all.

It is too early to tell whether Boeing or Airbus has made the better bet. All will depend on the comparative benefits perceived by the airlines and their flying customers. When the final story gets told, it will boil down to which company had the sharpest insights into the needs of its customers and the key trends in the industry.

The same principles apply in every sphere, from business to education to not-for-profit organizations to government.

Think about running a country. A government is constantly having to make choices and trade-offs on where it will spend its resources. There is a continuous tug-of-war between competing needs such as healthcare, housing, education, national security, transportation, and so on. The government can raise the necessary revenue in only two ways: through taxes and borrowing. Both of these options are limited.

I was born in South Africa and return there once a year. It is a beautiful and enchanting place. Now that it has achieved democracy, its greatest challenge is to generate enough economic growth to pay for the enormous gaps in human welfare that still exist. My opinion is that the country’s great economic opportunity lies in the development of tourism. It has an ideal climate, friendly people, wonderful beaches, stunning game parks, and a fantastic landscape. What is the big spoiler? Too much crime.

After a recent visit, my wife, Laura, and I were sitting in the Cape Town airport awaiting our flight back to the United States and reminiscing about the wonderful time we had had. As we glanced through the local newspaper, we saw a story citing the grim statistics about crime. The government had already launched a campaign to combat this problem, but clearly much more needed to be done. I felt a surge of frustration about what I saw as a lack of adequate resources being applied to deal more decisively with this scourge. I put down my newspaper and exclaimed to Laura, “Why don’t they simply hire and train thousands more policemen and put them on the streets?”

“Okay, Mr. Professor,” she replied, “let me tell you why: because they don’t have unlimited funds. The money would have to come out of the healthcare budget or housing or education or fighting AIDS. They have to make trade-offs. Isn’t this what you teach?”

Exactly so.

These are examples of some of the large individual bets that companies and governments often have to make. Managers at every level face smaller but equally significant choices every day. Which of these questions sound familiar? China and India are growing rapidly, and our competitors are moving in; which of these geographies should we enter? Which market segments should we concentrate on? Which products should we offer? Which R&D projects should we back? Which should we discontinue? Strategically coherent organizations make these choices based on a clear set of strategic parameters, so that the sum of their choices represents a consistent expression of that strategy.

Figure 1.3 The Essence of Strategy