McKinsey were reportedly the laggards in strategy in the mid 70’s, losing the competitive battle to BCG and Bain[1]. Fred Gluck was appointed as McKinsey’s first head of their strategy practice to address the gap. His first step was to invite thirty consultants from around the firm to come and spend two days ‘telling how they did strategy’. Gluck’s summary: “it was all over the goddam place”.
Gluck’s efforts to build a capability led to McKinsey’s first ever staff paper: The evolution of strategic management (1978). It was the first time McKinsey defined strategy: an integrated set of actions designed to create sustainable competitive advantage over competitors. Gluck observed that strategy emerges from three distinct processes. Most people will call out the formal strategic planning process. But, Gluck argued, there were at least two more: strategic thinking and opportunistic decision making. All three processes are rooted in an understanding of the markets, competitors, and broader environmental trends.
Fast forward 25 years, and Gluck reiterated that strategy always comes from one of these three sources: strategic planning; strategic thinking; and opportunistic decision making. But this time adding the important observation: “with the latter two being more important”.
Yet most of the papers on strategy making are oriented to discussion of the ‘formal’ strategy process. If you polled executives, you’d find a similar bias: most of them would default to the formal strategy process as the mechanism by which strategy is formulated.
Despite this bias to the formal strategy process, you don’t have to look hard to find an abundance of data that confirms most executives find the process deeply unsatisfying[2]: viz.
“Our planning process is like a primitive tribal ritual – there is a lot of dancing, waving of feathers and beating of drums. No one is exactly sure why we do it, but there is an almost mystical hope that something good will come out of it”
Less colourful but equally critical is the observation[3] “the basic ingredient of a good strategy – insight into how to create value – rarely emerges from planning meetings”.
What are we to make of these observations?
The obvious answer is we need a more deliberate, multi-layered approach to strategy making: thinking, planning, decision making.
What do we mean by strategic thinking? It is the ability to see across time: past, present, future. It is the ability to see and make connections across domains. It is the use of analogical reasoning to see possibilities. It is the ability to discern patterns within and beyond your own ecosystem.
Strategic thinking demands a deep intellectual curiosity. It demands a creative approach, an obsessive preoccupation with the future, and energy and passion. Don’t underestimate the power of emotion in both the creative, formative elements of strategy and in the translation and execution.
Strategy is ultimately an expression of shared mental models. To create a strategy that is more than ‘mere incrementalism’ we must therefore create new mental models. Most major strategic shifts reflect a fundamental shift in the framing of the strategic context. In my experience, the most profound strategic insights emerge from the corridor conversations, moments of reflection, and small group discussions.
Marcel Proust wrote “the real voyage of discovery consists not in seeking new landscapes, but in having new eyes”. Amy Tan[4] described how she saw her mother in a fresh light:
“you have to be displaced from what’s comfortable and routine, and then you get to see
things with fresh eyes”.
This must be one of the most important goals of any strategic conversation. The idea that people can just decide to ‘think differently’ is delusional. This challenge is compounded when working with executive teams.
What is the role of the formal ‘strategic planning’ process? The formal strategic planning process should build a shared understanding of the business, a common fact base, and agreement around important assumptions. To quote Kaplan & Beinhocker again (see footnote [2] earlier):
Formal planning can be a real source of competitive advantage … companies that achieved such success used strategic planning not to generate strategic plans, but as a learning tool to create ‘prepared minds’ [reference to Louis Pasteur’s famous quote … success comes to the prepared mind]
Rumelt[5] makes a similar point: the most important element of a strategy is a coherent point of view about the forces at work, not a plan.
Now what? Here’s three questions that might catalyse a fresh approach to ‘strategy making’:
How much time do you invest in networks in sectors which might on face value be unrelated to your own? The reality is most executives within your sector work to the same shared mental models.
How much time do you invest in deep reflection on the future of your industry, and your position within the industry? Do you have an insight about some fundamental truth about your customers, your competitors, and future business models?
Does your strategy process make room for deep, reflective conversations? Generative conversations usually occur around broad and exciting topics with the agenda loose enough that you aren’t ‘driving’ to produce action lists and deliverables
As always, good luck.
[1] This commentary about McKinsey’s approach is taken from Walter Kiechel’s The Lords of Strategy
[2] Kaplan, S., & Beinhocker, E. D. (2003). The real value of strategic planning. MIT Sloan Management Review
[3] Campbell, At., & Alexander, M. (1997). What's wrong with strategy? Harvard Business Review
[4] Amy Tan: author of The Joy Luck Club
[5] Richard Rumelt: author of Good strategy, bad strategy.
