The task of developing a company’s strategic plan is a leadership challenge—strategy as leadership.
Strategy and leadership are broad concepts, burdened by many different meanings. For us, strategy is primarily about setting priorities. A company needs to agree on what it is critical to undertake over the coming years in order to survive and succeed. It also needs to identify what is not critical, regardless of the potential benefits of certain products and activities. Leadership, on the other hand, is the practice of mobilizing people to tackle tough challenges and to develop the capacity to adapt and thrive in challenging environments. It is also about diagnosing the essential, distinguishing it from the expendable, and bringing about a real challenge to the status quo.
For years, we have listened to a familiar complaint. When we talk with senior management teams, they tend to bemoan the fact that managers are reluctant to do what has been requested of them. Meanwhile, the CEOs we meet grumble about the other members of their senior team, observing that they are weak at fulfilling their own responsibilities and at pushing others to do so too.
Interestingly, when we talk with employees in these organizations, they complain that for the CEO and the senior management team everything is important. They rarely know, therefore, what should take priority or how they should manage their agendas, direct their own effort, or, where relevant, that of their teams.
The failure to set priorities is the commonest way of avoiding organizational change. As change is the object of leadership, not prioritizing is the sneakiest way to avoid the responsibility of exercising real leadership. A vague priority definition guarantees the maintenance of the status quo—something that rarely leads to long-term success or survival.
For years, we discussed this phenomenon with one senior management team after another. Why do companies fail to set priorities? When they do set them, why do they fail to sustain them over time? What has become increasingly clear to us is that the challenge with setting priorities relates not to the benefits that are anticipated but to the hidden losses that are incurred once priorities have been agreed.
The cup-half-full perspective highlights the positive aspects of prioritization; the cup-half-empty perspective sees only the negative aspect of the losses. Whenever an individual or an organization sets priorities, it accepts that certain things will fall by the wayside as they will no longer be the focus of attention in the years to come. Prioritization brings with it a degree of pain, echoing to a certain extent the existentialist philosophy that we are condemned to a life of choices.
A shift from a product-based company to one that delivers customer-oriented services, for example, will inevitably have a negative impact on budgets, personnel, facilities, and equipment for a manufacturing division, its supply chain, and distributors. It will raise questions about pertinent skills and capabilities, affecting recruitment, training, and redeployment of existing staff across the organization. It may also change how, where, and when the company engages with its customers.
One of the most significant challenges is that posed to the senior management team itself. Organizations mirror what happens in the senior management team. If resistance is to be found among its members, then this will be replicated at lower organizational levels too. Setting priorities is a challenge for members of senior management teams who will have to acknowledge and accept their own losses while helping steer the organization toward new objectives.
Strategy entails the setting of priorities. For the senior management team, successfully setting priorities requires not only the identification of a new set of organizational capabilities to develop but also an understanding of the losses the organization will face in pursuit of its new priorities. This notion of managing losses is at the root of our strategy-as-leadership argument. Throughout the book, we will draw on both evolutionary economics and adaptive leadership to shed further light on our ideas.1 We will use evolutionary economics to predict changes in the competitive context, including those generated from macroeconomic shifts, and we will incorporate insights from adaptive leadership to anticipate losses and to address successful organizational changes.
Unpredictability is overrated. Organizations mostly fail at the navigation of predictable changes. In fact, it is often the case that managers can anticipate when an industry will stop growing at two-digit rates and enter into maturity. However, as we will explore in the following pages, numerous companies exit an industry at the point when it evolves from the development to the maturity stage. Another case that we will address is that of recessions. They are among the inevitable changes in the evolution of countrywide economic activity. However, the year after a recession occurs, bankruptcies multiply.
Because industries and countries evolve in regular patterns, and because companies mostly fail in navigating fairly predictable changes, in this book, we focus on analyzing predictable but drastic environmental changes. Evolutionary economics studies are instrumental as they provide broad context and help to anticipate the environmental changes that an organization will have to address. These changes are a fundamental source of organizational stress as they inevitably request changes in organizational routines, skills, and capabilities.
We take an outside-in approach to organizational change. By screening the environment, we detect the main evolutionary trends. As we plot changes in the environment, we can anticipate what types of new routines an organization will need to develop and what kinds of new skills employees will need to acquire. We can foresee, therefore, both what an organization will need to prioritize and the losses it will need to accept as a result.
It should be noted, though, that while we argue that changes often are predictable, it does not follow that the solutions to these changes come predefined. Instead, companies will need to work hard to find the most appropriate and contextually relevant answers to competitive changes. The sooner they can identify and make sense of changes, the more rapid and effective can be their response to them.
Our aspiration is to help enhance senior management teams’ capabilities, enabling them to address environmental changes successfully. We have focused on four different strategic leadership challenges, using case studies to bring them to life. They cover some of the most harmful changes that most of the organizations will face, once or several times along their existence.
We first describe the developmental challenge, which applies when an industry shifts from a development stage to one of maturity. This currently applies to the global smartphone industry in which the once steep rate of growth has now plateaued. Senior management teams in this sector are now required to guide their organizations as they adapt to a market that is more restricted than it once was, requiring different capabilities and resources in order to compete effectively.
Our second area of focus is the creative challenge, which emerges when an industry faces the radical transformation of its primary value propositions. This is well illustrated by the advent of the electric car and its impact on the auto industry. In many respects, the creative challenge is the inverse of the developmental one, with the industry switching from restriction to abundance. The challenge is to develop a radically new set of organizational capabilities to address this new context.
Third is the emergency challenge, which occurs when a nation enters into recession. This is similar to the development challenge in terms of the restriction of demands organizations face, with the consequent increase in competition, although the emergency challenge is more transitory in nature. This is a challenge pertinent to the drastic worldwide economic contraction that has been caused by the COVID-19 pandemic.
Finally, we address the structural challenge with particular reference to commodity industries, such as crops, livestock, and pulp. This challenge addresses a commodity-based company’s strategic leadership dilemmas when the mid-to long-term commodity price trajectory indicates decline rather than growth—something that has affected several organizations since the 2014 fall in oil prices. The structural challenges place a commodity company in a semipermanent state of lower operating margins.
The unexpected will happen; we know that for certain. However, being prepared for the expected helps to lessen the effect of the unexpected, since unforeseen situations, like the COVID-19 pandemic, exacerbate the impact of the predictable changes. Companies that had anticipated a national contraction, and were ready, therefore, for an emergency challenge, will find themselves better prepared for a worldwide recession such as the one caused by the pandemic. While those companies that anticipated a developmental challenge will have greater opportunities for consolidation, taking advantage of what is likely to occur during and after the coronavirus crisis. In other words, those well prepared for the expected will be better positioned to address the challenges that the unexpected brings.
In Strategy as Leadership, we illustrate the different challenges with reference to diverse examples taken from our own consultancy engagements, business literature, academic case studies, and classroom discussions. These examples illuminate distinct sets of strategic priorities as well as patterns of loss to which organizations have to respond and adapt.
Some of our insights are based on interaction with clients and students where information was supplied in confidence. To honor this, we have anonymized some of the scenarios discussed in this book, using made-up names for both people and organizations as well as removing anything descriptive whereby individuals could be identified.
Readers looking for quick answers do not need to read the book from cover to cover to obtain practical insights. It is not required to follow any sequence to understand each leadership challenge’s content, all of which are intended to be self-contained. However, reviewing the challenges in sequential order might facilitate the reader’s understanding of the interrelatedness between the different cyclical changes in the competitive environment and the leadership challenges they imply.
Understanding the book does not require prior knowledge of strategy or leadership. We try to explain the basic concepts, and we have included an appendix with more detailed explanations. However, probably, those readers familiar with Ronald Heifetz and Marty Linsky’s works in adaptive leadership will obtain additional insights from the book.
Senior management teams that use our outside-in approach to strategic adaptive challenges should address it as a process involving the following key activities: (1) scanning the environment and identifying evolutionary patterns in the competitive context; (2) detecting whether the organization is mimicking the changes in the external environment, seeking signs that a strategic adaptive challenge is underway; (3) interpreting those observations from a conflictual perspective; and (4) designing adaptive interventions based on observations and interpretations to address the strategic adaptive challenge identified. Each of these activities builds on the ones that come before it, and the process overall is iterative, involving repetition of its various steps.
A pervasive and distinguishing feature glues our framework together, as will be revealed by the cases analyzed in the following chapters: management and its formal authority alone are insufficient to diagnose and craft solutions to strategic leadership challenges adequately. At the end of each of the leadership challenges, we provide a framework application summary demonstrating its use for the challenges discussed therein to facilitate comprehension of the subject matter.
Strategy as Leadership is about how senior management teams are challenged to understand the evolution of the competitive context and, at the same time, mobilize their organizations to make sense of these changes. It demonstrates how both are necessary for an adequate organizational response to change and the successful navigation of whatever the future brings. This book is about the art of setting the strategic priorities and helping organizations anticipate and adapt to their losses in order to increase the likelihood of successful strategy implementation.