Strategic leadership is a leadership style. It provides the vision and direction for the growth and success of an organization. To successfully deal with change, all executives need the skills and tools for both strategy formulation and implementation. Managing change and ambiguity requires strategic leaders who not only provide a sense of direction, but who can also build ownership and alignment within their workgroups to implement change.
PROCESSES
Building prepared minds on a large scale is critical for companies needing to reset the strategic direction and transform the organization. Getting employees pointed in the right direction with the ability to learn and adapt concurrently helps ensure the strategy will deliver what leaders are looking for indeed.
Success requires a different way of thinking about how to marshal the resources of the organization to formulate and execute strategy. This way of thinking balances a focused analytical perspective with the human dimension of strategy making (as documented by the Park Li Group). These practices, coupled with a commitment of management time to engage the entire business in a strategy dialogue, lay the foundation for building winning organizations that can define, commit, adjust and adapt strategy quickly.
STRATEGY EXECUTION
The analytical dimension and the human dimension
Leaders face the continuing challenge of how they can meet the expectations of those who placed them there. Addressing these expectations usually takes the form of strategic decisions and actions. For a strategy to succeed, the leader must be able to adjust it as conditions require. But leaders cannot learn enough, fast enough, and do enough on their own to effectively adapt the strategy and then define, shape and execute the organizational response. If leaders are to win they must rely on the prepared minds of employees throughout the organization to understand the strategic intent and then both carry out the current strategy and adapt it in real time. The challenge is not only producing a winning strategy at a point in time but getting employees smart enough and motivated enough to execute the strategy and change it as conditions change. This requires the leader to focus as much on the process used to develop the strategy – the human dimension, as the content of the strategy – the analytical dimension.
Leaders recognize the need to incorporate aspects of both the analytical and human dimensions to effectively drive the organization forward but how this insight translates into action varies significantly from leader to leader.
These differences are largely driven by the bias leaders have for how they divide their time between the two dimensions. This bias is reflected in how leaders answer questions such as the following:
1. What is their primary role as chief strategist?
2. What is their job as a leader during ongoing strategy making?
3. What type of team should their strategy making create?
4. When is strategy making finished?
How leaders answer these questions will ultimately impact their ability to deliver a winning strategy because their responses indicate whether and how they build and lead an organization that is aligned and committed to a particular agenda.
Question 1: What is their primary role as chief strategist?
Should the focus be on being the architect of the strategy product or being the architect of the strategy process? Is their primary job to come up with the right strategy or is it to manage a process to achieve this outcome?
Analytical: From an analytical perspective the chief strategist’s job is to be the “architect of the perfect strategy product.” Leaders holding this perspective see the strategy itself as the outcome and managing the process is either ignored or delegated, frequently to individuals who lack line of sight to the senior person. Their concerns center on organizing and mastering the data, developing the arguments and looking for that burst of insight that will drive the organization’s competitive advantage and provide the foundation for future success.
Question 2: What is their job as a leader during ongoing strategy making?
Linked to the first question, this second question focuses on how leaders conceptualize their role as they participate in the ongoing strategy process. Is it to provide bold, clear leadership that elicits confidence in their personal capabilities as “hero”, or is it to serve as a “coach and guide” who enables others to perform and stand in the limelight?
Analytical: Analytical leaders feel the need to personally come up with the right answer. If they are to be the leader, they must be the one with the solutions. They feel obligated to lead from the front on strategic issues, demonstrating expertise through business insights and customer knowledge, skillfully outsmarting the competition and outguessing the marketplace. These leaders are seen as visionary, smart leaders comfortably assuming star status as they fill the role of a Homeric hero.
Human: These leaders view themselves as coaches or guides, believing that the organization’s strategy is only as good as the breadth and depth of the understanding and commitment that it attracts. Responsibility for developing the strategy is widely dispersed but carefully coordinated. These leaders focus on guiding and responding while building commitment and empowerment among those building the strategy.
Question 3: What type of team should their strategy making create?
Analytical: The analytical approach to strategy creates an exclusive “inner circle” of thinkers who are in the know and make most of the decisions. Being part of this group feels good because it is similar to being part of a private society. The common element that binds society members together is their close knit exclusiveness and the extraordinary access and understanding of the data and thinking that leads to the strategy. This smaller group is well versed in the views of the leader and the data, and knows how the different pieces of the strategy fit together.
Human: A leader focusing on the human dimension is concerned about building a sense of citizenship among a much larger group of people. It is built around a process that invites much broader participation and relies on input from many others outside of the top team. The aim is to create a sense of belonging and ownership across the organization. In this situation many more people feel they can have an informed opinion about the overall strategy. They believe they have been part of its development, and that they can influence the outcome. In that sense, it is their strategy.
Question 4: When is strategy making finished?
Most leaders have an idea of how strategy making and time are related. The question being asked is, “Is strategy making as a discrete set of sequential activities with a defined start and stop? Or, is strategy something that is continually reforming itself, never quite complete or perfected but always in a state of evolution?” At its essence, the question is, “In the organization, is the strategy process fundamentally linear with a defined beginning and end or is it fundamentally iterative with no defined endpoint?”
Analytical: From the analytical view good strategy making follows a linear process with each task being “checked off” as it is completed. As set out in many strategy texts, it is a set of reasonably well defined steps leading to a fully formed plan of execution. Effectively, the strategy is set for a defined time period and executed.
Incorporating both analytical and human dimensions
To integrate both dimensions into strategy making in a way that creates a winning outcome and gets the whole organization understanding and committed to this common agenda requires leaders who are clear about the strategic capacity of each of their internal stakeholder groups and who have the perspective and insights to lead in a way that incorporates both dimensions as the strategy is developed. The steps described below are intended to provide the leader with techniques to do that. Taken collectively, they define a process that incorporates both the analytical and human dimensions, while challenging individuals throughout the organization to raise the quality and quantity of their strategic thinking and their strategic leadership.
Raise the bar for more effective strategic leadership in the middle of the organization
For many middle managers, participating effectively in the strategy development process is as much a question of training as it is doing. Building understanding and skills on topics such as the vocabulary and toolset, marketplace dynamics and the associated ambiguity, strategy story telling and their own individual strategic leadership strengths and weaknesses are all aspects of a process that can ignite a sense of understanding and commitment across the middle of the organization in a way that leverages the human fabric.
A key insight that drives this outcome is the recognition that most middle managers regardless of cultural background want to commit to something and belong to something that is more than who they are as individuals. It is the leader’s job to give managers the opportunities in which they can make such commitments. In all instances, providing the settings for these individuals includes asking them to be story tellers of the organizational strategy to those around them. Doing this requires these middle managers to understand and embrace both the analytical and human dimensions of the strategy making. It also creates a much smarter and more prepared middle manager that has publicly committed to the strategy and is in a much stronger position to make local decisions as the strategy evolves.
While front line supervisors and their teams in most instances are the largest portion of the population, the strategy making work to be done with this group is relatively simple. Their needs center largely on context, community and clarity. Engaging this group in a discussion of the basic business model and the organizational strategy provides critical context and gives meaning to their work. Their participation in shaping the local strategy builds understanding and ownership and a sense of partnership with the larger organization.
Strategy making with this group begins with the organization’s strategy story. Using middle managers in this role allows these individuals to raise their own strategic leadership bar. And it is through these middle managers that the organizational story becomes more accessible in those settings and situations that they know much more intimately than senior managers.
Ultimately, the strategy only comes alive and communities are built when it is used to set the broad context and is followed by a much more detailed local discussion addressing the question, “What does this mean for me and my team?” The combination of the analytical and human dimensions applied to this group provides a platform of understanding among the rank and file for what the strategy is, what it means to them and why it needs to continue to evolve over time. This in turn increases the willingness of this critically important but difficult to reach population to recognize the inevitable changes in strategy as markers of leadership success rather than leadership failure and in the process it builds and strengthens organizational agility.
Strategic management involves formulation and implementation of the major goals and initiatives taken by a company's top management on behalf of owners, based on consideration of resources and an assessment of the internal and external environments in which the organization competes.
Strategic management provides overall direction to the enterprise and involves specifying the organization's objectives, developing policies and plans designed to achieve these objectives, and then allocating resources to implement the plans. Academics and practicing managers have developed numerous models and frameworks to assist in strategic decision making in the context of complex environments and competitive dynamics. Strategic management is not static in nature; the models often include a feedback loop to monitor execution and inform the next round of planning.
Harvard Professor Michael Porter identifies three principles underlying strategy: creating a "unique and valuable [market] position", making trade-offs by choosing "what not to do", and creating "fit" by aligning company activities with one another to support the chosen strategy. Dr. Vladimir Kvint defines strategy as "a system of finding, formulating, and developing a doctrine that will ensure long-term success if followed faithfully."
Corporate strategy involves answering a key question from a portfolio perspective: "What business should we be in?" Business strategy involves answering the question: "How shall we compete in this business?" In management theory and practice, a further distinction is often made between strategic management and operational management. Operational management is concerned primarily with improving efficiency and controlling costs within the boundaries set by the organization's strategy.
Definition
Strategic management involves the formulation and implementation of the major goals and initiatives taken by a company's top management on behalf of owners, based on consideration of resources and an assessment of the internal and external environments in which the organization competes. Strategy is defined as "the determination of the basic long-term goals of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals." Strategies are established to set direction, focus effort, define or clarify the organization, and provide consistency or guidance in response to the environment.
Strategic management is often described as involving two major processes: formulation and implementation of strategy. While described sequentially below, in practice the two processes are iterative and each provides input for the other.
Formulation
Formulation of strategy involves analyzing the environment in which the organization operates, then making a series of strategic decisions about how the organization will compete. Formulation ends with a series of goals or objectives and measures for the organization to pursue. Environmental analysis includes the:
- Remote external environment, including the political, economic, social, technological, legal and environmental landscape (PESTLE);
- Industry environment, such as the competitive behavior of rival organizations, the bargaining power of buyers/customers and suppliers, threats from new entrants to the industry, and the ability of buyers to substitute products (Porter's 5 forces); and
- Internal environment, regarding the strengths and weaknesses of the organization's resources (i.e., its people, processes and IT systems).
- What is the organization's business?
- Who is the target customer for the organization's products and services?
- Where are the customers and how do they buy? What is considered "value" to the customer?
- Which businesses, products and services should be included or excluded from the portfolio of offerings?
- What is the geographic scope of the business?
- What differentiates the company from its competitors in the eyes of customers and other stakeholders?
- Which skills and capabilities should be developed within the firm?
- What are the important opportunities and risks for the organization?
- How can the firm grow, through both its base business and new business?
The answers to these and many other strategic questions result in the organization's strategy and a series of specific short-term and long-term goals or objectives and related measures.
IMPLEMENTATION
The second major process of strategic management is implementation, which involves decisions regarding how the organization's resources (i.e., people, process and IT systems) will be aligned and mobilized towards the objectives. Implementation results in how the organization's resources are structured (such as by product or service or geography), leadership arrangements, communication, incentives, and monitoring mechanisms to track progress towards objectives, among others.
Running the day-to-day operations of the business is often referred to as "operations management" or specific terms for key departments or functions, such as "logistics management" or "marketing management," which take over once strategic management decisions are implemented.
In 1988, Henry Mintzberg described the many different definitions and perspectives on strategy reflected in both academic research and in practice. He examined the strategic process and concluded it was much more fluid and unpredictable than people had thought. Because of this, he could not point to one process that could be called strategic planning. Instead Mintzberg concludes that there are five types of strategies:
- Strategy as plan – a directed course of action to achieve an intended set of goals; similar to the strategic planning concept;
- Strategy as pattern – a consistent pattern of past behavior, with a strategy realized over time rather than planned or intended. Where the realized pattern was different from the intent, he referred to the strategy as emergent;
- Strategy as position – locating brands, products, or companies within the market, based on the conceptual framework of consumers or other stakeholders; a strategy determined primarily by factors outside the firm;
- Strategy as ploy – a specific maneuver intended to outwit a competitor; and
- Strategy as perspective – executing strategy based on a "theory of the business" or natural extension of the mindset or ideological perspective of the organization.
In 1998, Mintzberg developed these five types of management strategy into 10 “schools of thought” and grouped them into three categories. The first group is normative. It consists of the schools of informal design and conception, the formal planning, and analytical positioning. The second group, consisting of six schools, is more concerned with how strategic management is actually done, rather than prescribing optimal plans or positions. The six schools are entrepreneurial, visionary, cognitive, learning/adaptive/emergent, negotiation, corporate culture and business environment. The third and final group consists of one school, the configuration or transformation school, a hybrid of the other schools organized into stages, organizational life cycles, or “episodes”.
Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. It may also extend to control mechanisms for guiding the implementation of the strategy. Strategic planning became prominent in corporations during the 1960s and remains an important aspect of strategic management. It is executed by strategic planners or strategists, who involve many parties and research sources in their analysis of the organization and its relationship to the environment in which it competes.
Strategy has many definitions, but generally involves setting goals, determining actions to achieve the goals, and mobilizing resources to execute the actions. A strategy describes how the ends (goals) will be achieved by the means (resources). The senior leadership of an organization is generally tasked with determining strategy. Strategy can be planned (intended) or can be observed as a pattern of activity (emergent) as the organization adapts to its environment or competes.
Strategy includes processes of formulation and implementation; strategic planning helps coordinate both. However, strategic planning is analytical in nature (i.e., it involves "finding the dots"); strategy formation itself involves synthesis (i.e., "connecting the dots") via strategic thinking. As such, strategic planning occurs around the strategy formation activity.
Overview
Strategic planning is a process and thus has inputs, activities, and outputs. It may be formal or informal and is typically iterative, with feedback loops throughout the process. Some elements of the process may be continuous and others may be executed as discrete projects with a definitive start and end during a period. Strategic planning provides inputs for strategic thinking, which guides the actual strategy formation. The end result is the organization's strategy, including a diagnosis of the environment and competitive situation, a guiding policy on what the organization intends to accomplish, and key initiatives or action plans for achieving the guiding policy.
Michael Porter wrote in 1980 that formulation of competitive strategy includes consideration of four key elements:
1.
2. Personal values of the key implementers (i.e., management and the board);
3. Industry opportunities and threats; and
4. Broader societal expectations.
The first two elements relate to factors internal to the company (i.e., the internal environment), while the latter two relate to factors external to the company (i.e., the external environment). These elements are considered throughout the strategic planning process.
Inputs
Data is gathered from a variety of sources, such as interviews with key executives, review of publicly available documents on the competition or market, primary research (e.g., visiting or observing competitor places of business or comparing prices), industry studies, etc. This may be part of a competitive intelligence program. Inputs are gathered to help support an understanding of the competitive environment and its opportunities and risks. Other inputs include an understanding of the values of key stakeholders, such as the board, shareholders, and senior management. These values may be captured in an organization's vision and mission statements.
Activities
Strategic planning activities include meetings and other communication among the organization's leaders and personnel to develop a common understanding regarding the competitive environment and what the organization's response to that environment (its strategy) should be. A variety of strategic planning tools (described in the section below) may be completed as part of strategic planning activities.
The organization's leaders may have a series of questions they want answered in formulating the strategy and gathering inputs, such as:
- What is considered "value" to the customer or constituency?
- Which products and services should be included or excluded from the portfolio of offerings?
- What is the geographic scope of the organization?
- What differentiates the organization from its competitors in the eyes of customers and other stakeholders?
- Which skills and resources should be developed within the organization?
Outputs
The output of strategic planning includes documentation and communication describing the organization's strategy and how it should be implemented, sometimes referred to as the strategic plan. The strategy may include a diagnosis of the competitive situation, a guiding policy for achieving the organization's goals, and specific action plans to be implemented. A strategic plan may cover multiple years and be updated periodically.
The organization may use a variety of methods of measuring and monitoring progress towards the objectives and measures established, such as a balanced scorecard or strategy map. Companies may also plan their financial statements (i.e., balance sheets, income statements, and cash flows) for several years when developing their strategic plan, as part of the goal setting activity. The term budget is often used to describe the expected financial performance of an organization for the upcoming year.
What Is Strategic Decision Making?
One of the essential parts of creating and running a government institution is creating a mission or vision for the institution and a set of goals the company aims to achieve. Strategic decision making, or strategic planning, describes the process of creating a company's mission and objectives and deciding upon the courses of action a company should pursue to achieve those goals.
Strategic Planning Basics
Strategic decision making is an ongoing process that involves creating strategies to achieve goals and altering strategies based on observed outcomes. For example, the managers of a pizza restaurant might have the objective of increasing sales and decide to implement a strategy of offering lower prices on certain products during off hours to attract more customers. After a month of pursuing the new strategy, managers can look at sales data for the month and evaluate whether the strategy resulted in increasing sales and then choose to keep the new price scheme or alter their strategy.
SWOT Analysis
A SWOT analysis is a common strategic planning tool that managers can use to examine internal and external factors that may influence the ability to achieve goals. A SWOT analysis involves creating a list of a businesses strengths and weaknesses and the external threats and opportunities it faces. Identifying strengths, weaknesses, opportunities and threats can help managers create strategies to exploit strengths or minimize weaknesses to take advantage of opportunity and avoid threats.
A cost-benefit analysis is a strategic decision making tool that can help managers choose between two or more different courses of action. In a cost-benefit analysis, managers estimate the amount of revenue they expect a certain project to generate and the expected costs of pursuing the project. By estimating the costs and benefits associated with several different projects, managers can determine which project is expected to produce the greatest benefit.
Levels of decision making
Decisions are made at different levels in an organisation's hierarchy:
- Strategic decisions are long-term in their impact. They affect and shape the direction of the whole business. They are generally made by senior managers. The managers of the bakery need to take a strategic decision about whether to remain in the cafe business. Long-term forecasts of business turnover set against likely market conditions will help to determine if it should close the cafe business.
- Tactical decisions help to implement the strategy. They are usually made by middle management. For the cafe, a tactical decision would be whether to open earlier in the morning or on Saturday to attract new customers. Managers would want research data on likely customer numbers to help them decide if opening hours should be extended.
- Operational decisions relate to the day-to-day running of the business. They are mainly routine and may be taken by middle or junior managers. For example, a simple operational decision for the cafe would be whether to order more coffee for next week. Stock and sales data will show when it needs to order more supplies.
· As these examples show, decisions at all levels need data. A business creates a trail of data. This includes data on sales, employee costs and payments. In a large company, such as Tesco, millions of data items are created every day against thousands of cost and sales headings. This data can provide a picture of trends, which the business can use in its forward planning.
· Financial accountants use recorded data to prepare the accounting statements for a business. Every company (large and small) has a duty to keep accounting records and must prepare annual accounts that report on the performance and activities of the company during the year. Financial accountants must ensure these accounts are accurate and prepared in accordance with accounting rules and conventions.
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Skill Development
- Think Strategically — Become more sophisticated in exercising strategic judgment for your team and organization, especially regarding global economic and competitive forces. Ask the right questions, use appropriate frameworks and jump from analysis paralysis to action.
- Develop Decision-Making Processes — Integrate strategy, judgment and data for more effective decision-making. Mitigate risk, promote collaboration, avoid common decision traps, and work with —instead of struggle against — group dynamics and cognitive processes.
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