“Strategic direction is more important today. It's about providing a framework for managers to navigate through the fog of complex chokes. No company can avoid this."

– C.K. Prahalad –

PoS Oct 2013 | How to Sharpen Strategic Thinking

Dear friend,

In hypercompetitive markets of today, it has become harder than ever for a business to survive. There is no better example of this reality than Nokia – once a pioneer and giant, now a fallen icon.

When features are easily copied, cost advantage swiftly neutralised, and technology triumphed by disruption, strategic thinking capability of a firm can be the difference between success and failure.

What is strategic thinking?

Strategic thinking is the process of figuring out an effective way to achieve a long-term goal. It is not innovation but yes, creative thinking greatly enhances the quality of strategic decisions.

We think analytically and intuitively, iteratively, to formulate strategies. Sometimes we use our gut-feel to validate a hypothesis created from analysis of data. At other times we seek data to substantiate hunches. Strategy emerges from the exploration using the two faculties.

Sound knowledge of strategy strengthens analytical and deliberate exploration of options. Insights based on experience intuitively generate options as well as those brought forth rationally.

Anticipatory thinking, a quality of the strategic mind, is a vital process of formulating strategy.

It helps us foresee possible trajectories of events, actions of other players in the game, and initiate or avoid a course of action.

Intuition: friend or foe?

Intuitive solutions can be brilliant as Sony’s Walkman and Apple’s products have shown. But intuition also naturally, inescapably, and surreptitiously taints individual as well as collective decisions. We are usually unaware that our judgement may be risky, faulty, or irrational.

That is why most of us stay invested in a falling share market, or delay entering a resurgent one. It is why we tend to drive faster when running late for a flight oblivious of the escalating risk of an accident. Perhaps it drove Kingfisher Airlines to acquire Air Deccan?

What can be done?

There are four approaches to strengthening strategic thinking capability.
• Educating managers on strategy
• Teaching them how to think
• Strengthening intuition, and
• Establishing sound decision-making processes.

Each step helps but all four are necessary for lasting impact.

Lasting impact: The essentials

Strategy education (read my September 2013 blog) facilitates rational thinking when we apply appropriate conceptual frameworks to business problems. A shared strategy vocabulary promotes alignment by effectively embedding and cascading strategy in the organisation.

Teaching subjects like game theory improves abstract thinking and anticipation. Knowledge of how intuitive thinking and bias work can heighten awareness of pitfalls, encourage introspection and improve the quality of decisions.

Strengthening intuition. Gaining and sharing insight is one of the better-known ways of strengthening intuitive capability. Experiments, finding out exercises, hypothesis testing, and pilot projects enable learning by doing. Sharing findings with others adds to collective knowledge. Apprenticeship is another method. It is effective where knowledge is tacit and difficult to codify, explain, and transfer.

Establishing decision processes. Most major decisions in organisations are taken after discussion. Yet costly errors occur. It is imperative therefore, that pros and cons are thoroughly weighed. Unfortunately, halo effect of charismatic leaders, overconfidence bias, and underestimation of future risks can corrupt judgement. That is why firms need to put in place methodologies that must be followed at least for major decisions.

A number of methods are available; pre-mortem is one (Gary Klein, cognitive psychologist). In this approach a senior and credible manager is required to play the Devil’s Advocate. She will research and present reasons why an initiative may fail, before it is kicked off.

Pre-mortem challenges existing beliefs, highlights dangers, confronts champions of proposed decisions, and forces a mature assessment of pros and cons. A genuinely open and non-threatening environment is essential for pre-mortem to be effective.

Strategic thinking capability is the difference

In a world of business where cost of failure can be catastrophic, a firm’s strategic thinking capability can be the difference between glory and disaster.

V.N. Bhattacharya
Business Strategy Consultant

Read What Highly Successful Companies Do.