Strategic thinking synthesizes the choice of resource allocation that will maximize value creation to the customer, given the trend in the market and technology evolution
Strategy has different connotations and is used variedly across contexts! From the perspective of teaching strategy to corporate executives, it is about, every employee in a company understanding the ‘big picture’. Strategy involves elevating one from their own ‘functional or departmental silos’ to take a broader perspective viewed from a corporate level, understanding the positioning of their company, the customers served, the value proposition delivered, the performance of their company vis-à-vis the competitors, and understanding the shortcomings and finding a way to bridge the gap! More importantly, it is extremely important for them to appreciate, where do I fit into this puzzle? This is also called as ‘strategic thinking’. Once an executive is able to look at organizational problems from the above perspective, he is considered to be strategically thinking!
Most companies use the ‘strategic planning’ process, which is widely practiced in the Indian context. Since most of the key executives are generally part of this exercise, can we take for granted that they all strategically think? Unfortunately not! Strategic planning is not strategic thinking. Why?
The biggest difference between strategic planning and strategic thinking is to see the industry evolution through the ‘competitor’s lens’, which strategic planning exercises generally ignore. Strategic planning is more of an ‘inside out’ approach, i.e., these are the customers we have been serving, this is what we did we did last year, this is where we invested our capex, this is our market share and now, we will grow by so much, we will improve our market share by so much…so on and so forth. In strategic planning, competitor dynamics is generally ignored and the company is more obsessed by what it wants to do. In the process, it just takes the customer and the competitor for granted! Disruptive innovation is not conducive, and is never likely to be an agenda, in the strategic planning exercises. Hence, business units and divisions generally would be forced to continue to do what they have been doing for years. Further, when each company projects its revenue streams for the subsequent year, it would be surprising to see the combined total projections in most likelihood will go well beyond what the market can absorb! A typical case where the competitor’s responses are ignored!
Strategic planning exercises in companies take various forms, depending on the ‘maturity cycle’ of the company with respect to strategy formulation and execution. Many companies practice this as a ‘top-down’ exercise, where each business unit is given a ‘line level’ target for the following year. Although the business unit head may have been actively involved in setting out the larger contours of the business unit’s strategy, other executives in the business unit many not understand the nuances underlying various strategic choices made by the business unit. Contrarily, in other companies strategic planning exercises end up as a ‘bottom up’ excel spread sheet based activity where every business unit and department projects revenues, costs, profits and capital expenditure requirements which is then consolidated at the corporate level. Generally, business units use the previous year’s figures and inflate the numbers to come up with an achievable target which is then consolidated at the corporate level, reviewed, pruned up, or down, and circulated as the final strategic plan for the company, business units and the departments.
Strategic thinking, however, is different and centers on the customer, and competition, and it synthesizes the choice of resource allocation that will maximize value creation to the customer, given the trend in the market and technology evolution. In a way, it is an ‘outside-in’ approach, which allows companies to invest in capabilities that are relevant for the market. Which means, strategic thinking provides the executives an ‘open mind’ to accept that the customer requirements are changing, the market needs are different today, from what it was yesterday, and our offerings are unlikely to make a mark, as compared to what our competitors are offering. Such a thought process not only helps to redirect the flow of resources to create newer capabilities, but also gives the confidence to ‘write off’ sunk costs that are no more considered to be relevant. Strategic thinking is more of a creative process.
So, can strategic thinking be taught? Yes. More importantly, the key executives across business units, divisions and departments need to strategically think for an organization to be successful. How can it be taught? Relevant case studies and business simulations that the executives can closely relate to are good means by which senior managers can be taught to strategically think. Immersing senior managers in case studies relating to successful and failed companies and situations that lead the companies to be successful or fail, help them to correlate such events with their own company and their job.
‘Hands on’ business strategy simulations facilitate the managers to formulate and execute business strategy for a ‘virtual’ company, operating in a competitive industry environment reflecting the complications and challenges that a real time market would pose; a number of key take always could follow resulting from their ‘hands on’ simulation experience. Such exercises facilitate the participants to develop strategic thinking through integrating various functional specifics to gain an overall corporate perspective and make decision holistically understanding the implications with respect to the competition within the industry. In the process, the participants get hands-on-experience of managing not only firm level challenges but also cautiously considering the industry level drivers, and also studying the results of their actions in terms of financial reports.
How does one go about in making sure that key employees of the company strategically think? The HR/L&D team plays a pivotal role in ensuring employees across various levels of the organization understand this bigger picture, connect their work as well as the outcome of what they do to the organizational success.