Strategy At A Crossroads

Tuesday, June 3, 2014

There has been much hand wringing recently about the role of business strategy. The cause for alarm is simply this: in a world full of surprises and disruptions, no competitive advantage is sustainable for very long. True enough. And this is certainly an important reality. But what should we actually do about it?

This is where viewpoints start to diverge. Some have begun to argue that the traditional concepts of strategy should simply be ditched in favor of pursuing an opportunistic stream of innovative activity. Out with the old products, in with the new. No longer do we need the rigors of mapping out an actual strategic roadmap.

So why does this approach worry me? I’m all in favor of innovation. Who isn’t? My concern is that this argues for exactly the wrong philosophy. It is now more important than ever to strengthen the foundations of acting strategically, not to abandon them.

Let’s examine these foundations. Strategy is, and always has been about answering three crucial questions. Where will we compete? How will we win? What will be our priorities for success? The answers to these questions will determine our destiny. Strategy is about making choices that cascade through an organization. The alignment of our business system, asset deployment and support of our people in pursuit of a common cause is essential for success.  We can’t achieve this strategic coherence through an ad hoc approach. This is true in military strategy, in national policy and also in business strategy.

So back to our challenge. What should we do about the fact that the competitive environment is changing faster than ever? Abandoning the three questions is certainly not the answer, because this would remove our navigation system.  Instead we need to add a fourth question. How can we master a learning-based process for refreshing our answers to the three questions as the environment changes?

Our need for a sustainable competitive advantage has not gone away. But its essential nature has changed. We will not find it in a particular product or service - the shelf life of these is getting shorter and shorter. Our only sustainable advantage is the organizational capability to be adaptive through a process of rapid learning. This requires a robust process for understanding patterns and trends more quickly than competitors, and then updating our choices accordingly. Successful organizations move from one focus to another in a cycle of renewal; they never allow themselves to become unfocused.

The answer is not to reject the fundamentals of strategy. Choice-making is its wellspring. Our survival imperative is to master strategic agility.

Nelson Mandela

Monday, April 28, 2014


What Nelson Mandela Taught the World About Leadership

By Willie Pietersen

Nelson Mandela is widely acknowledged to have been one of the most iconic leaders of the past century. His death at the age of 95 on December 5, 2013, brought forth an outpouring of  accolades for what he achieved and the legacy he left behind.

One message emerged above all others: The world will be a better place if we can carry forward Mandela’s values and not let them die with the man. So we need to take stock. What did he achieve? How did he do it? What can we learn from his life and work?

As a former CEO and now a professor at Columbia Business School who has long studied (and striven to practice) the art of leadership, these questions are of professional interest to me. As someone who was born and raised in South Africa, and witnessed the cruel injustices of apartheid first hand, they also matter to me on a deeply personal level.

What did Mandela achieve?

After spending 27 years in jail, Mandela became South Africa’s first black president in 1994. The challenges he faced were daunting. Black South Africans were bitter and hostile about the decades of oppression they had suffered; whites were apprehensive about their potential loss of privilege and frightened about the likelihood of violent reprisals by the newly empowered blacks. South Africa felt like a powder keg ready to blow up.

Yet during his five years as president, Mandela led a peaceful transition from a discordant, racially segregated country to an inclusive democracy, and against all odds, ushered in a period of harmony and stability. This achievement probably has no precedent in history.

Underneath this monumental achievement lies a remarkable journey and a revealing portrait of a man’s character. Together they provide priceless and enduring lessons in leadership.

Mandela’s lessons in leadership

Nelson Mandela showed us that in order to bring about transformational change, certain leadership qualities are essential:

- Deep self-knowledge, humility, and a strong moral foundation

- Dedication to a cause larger than yourself

- A clear vision for success, supported by unwavering determination

- An ability to build trust by empathizing with the needs and concerns of others

- The personal strength to overcome bitterness and forgive one’s enemies

Together, these represent a unique combination of focus, principles, courage and compassion.

We live in a world beset by sectarian hostilities. Imagine the possibilities if political leaders everywhere could summon the moral strength to apply Nelson Mandela’s teachings.

Note: The full text of this article can be seen on my web site under the section “Willie’s Work”, sub-section “Author”

Learning How To Learn

Wednesday, February 15, 2012

In 1997, Arie de Geus, author of The Living Company, gave us the germ of a great idea: “In the future, the ability to learn faster than competitors may be the only sustainable competitive advantage.”

Without the ability to learn effectively, competitive advantage would be impossible to attain. This applies at both the individual and collective level. It is hard to get ahead individually if we fail to learn; organizations die when they are unable learn and adapt; and as our political leaders tell us, a first class education system is critical for success in a competitive global environment.

But what does it take to be an effective learner or learning organization? Or more important, how can we win at learning?

Here are my thoughts on this question.

1) Learning is mainly about leadership of self

Winston Churchill said, “I love to learn, but I hate being taught.” If we look at the Latin root of the word “education” we see that it means “to lead out”, not to “put in.” Learning would be easy to achieve if it simply meant sitting people down and pumping them full of information. But learning does not happen that way. Learning is a drive that comes from the inner self. It requires motivation. A crucial task of leaders is to ignite and sustain that motivation within themselves and within their teams.

Howard Gardner has a great definition of leadership. He says successful leaders are able, through personal example, to change the thoughts, feelings and actions of those whom they seek to lead. Effective leaders personally practice learning, curiosity and a spirit of inquiry and cultivate these practices in others. The decisions which follow will then be based on commitment rather than mere compliance.

2) First we must learn what to learn about.

We need to frame our learning challenge more explicitly. Of course a sound general education is an essential building block. But in a competitive environment this is not enough. If we are to develop a winning strategy, our learning must be purposeful and focused. Our objective must be strategic learning. This means directing our learning to achieve a superior understanding of customers, competitors, the dynamics of our external environment and our own realities. This is where the competition begins. Lose this battle and we lose the war.

Procter & Gamble conducts this range of focused inquiry deeply and systematically. One of their breakthrough ideas is an open innovation system that harnesses talent from outside the company to bring in fresh perspectives about the competitive environment.

3) Our challenge has shifted from information to insight

The digital age has turned information into a commodity which has become cheap, abundant, and rapidly transferable. The main source of competitive advantage has shifted from the production of information to making sense of the overwhelming information already available to us. Paul Saffo put it well: “Our predicament is the growing gap between the volume of information and our ability to make sense of it.”

A recent television program examined the work of the U.S. National Security Agency (NSA). The head of the NSA said, “We accumulate a massive stream of information, but it’s hard to know what’s there.” In fact, most of the lapses in national security, including 9/11, have been failures of sense making. All the information was available, but scattered. The failure was one of synthesis.

What is the difference between information and insight? Insights involve looking at a body of information and seeing the underlying truth. This involves sifting through volumes of information to find patterns and explanations which enable you to see things in a new way. Insights simplify complexity. They enable you to make better choices on where to compete and how to win.

Wal-Mart’s early insight was that the key to everyday low prices was an efficient and smoothly functioning supply chain. As Wal-Mart developed and honed that capability, K-Mart and Sears gradually fell behind and eventually descended into bankruptcy.

4) Questions are more important than answers

We will never have all the right answers, but we must have the right questions. In fact, producing answers without the right questions can be downright dangerous. As noted by the ancient sage, Solomon Gabirol, “A wise man’s questions contain half the answer.” They serve as our portals of discovery.

Entrenched answers create fixed mental models. They become a substitute for critical thinking. And inevitably they – and the organizations clinging to them – get overtaken by events. The right questions force us to challenge our underlying assumptions. They unfreeze us and open our thinking to new vistas.

What often brings us down is the question we failed to ask. Just look at the tragic collapse of General Motors before it was rescued by the government. As their market share and profitability declined inexorably year after year, they obsessed over their cost disadvantages and totally lost touch with the needs of their customers. Those questions were simply not on their agenda.

Learning organizations have a high ratio of questions to answers. They are driven by curiosity – the first part of the word “question” is “quest”. Questioning is an act of humility. It involves an admission: “I don’t know. I want to deepen my understanding. I need to learn from others.” Genuine learning is non-hierarchical. As my friend and eminent surgeon, Dr. Ash Tewari, puts it, effective learning means no subordination.

5) Learning is a journey, not an event

As a professor at Columbia Business School I am heavily involved in executive education. A misconception I often encounter is that learning is an event, such as a seven day program, that on its own will inject the necessary amount of learning to carry those executives forward into the future. This fallacy results in the squandering of this investment in human development.

This point was brought home to me when I became an American citizen and attended the graduation of my two children in this country. Where I was raised in South Africa and also where I studied in the UK, these events are simply called a “graduation.” The attendant idea is that this is the end of something. However, I was struck by the fact that in the U.S this ceremony is called a “commencement”, meaning the beginning (or at least the continuation) of something. I love this concept. It exactly captures the essence of learning as a lifelong journey.

For executive education, the implications are profound. Our job as teachers is not done until our participants have internalized the individual and organizational processes for ongoing learning and adaptation – in other words, until they have learned how to learn.

6) Effective leaders instill learning as a habit

Aristotle reminded us that excellence is not an act. It’s a habit.

There are a number of simple but powerful ways to engender organizational learning. Let me offer just two simple techniques that work wonderfully well:

- Teach what you have learned.

I ask participants on my programs for a commitment to go back and teach their teams what they have learned. I offer them a teaching plan for doing this. This accomplishes two goals. First, by teaching, these leaders deepen their own learning. Second, they share the learning (an act of generosity) and thereby raise the capacity of their team members. The concept here is “leaders as teachers.”

- Keep a learning journal.

Writing down what you have learned forces you to clarify your thinking. Then regularly retrieve your learning. I have personally kept a learning journal since I was sixteen years of age. I now have a pile of what I call “my little black books” (they all happen to be black). As a means of reflecting I often consult these journals. I regard them as a treasure. Dr. Ash Tewari, whom I referred to earlier, has done the same for many years. But he goes one step further. He insists that everyone on his team, such as his young interns, regularly write down their learning. Then at his weekly team meetings he calls at random on members (including himself!) to share their learning. Ash has created a team of learners.

Instilling learning as a habit consists of a set of deliberate practices such as these. However, I believe there is a threshold requirement. Leaders must serve as role models. Effective leaders constantly ask probing but non-threatening questions and listen to the answers. They readily admit their own mistakes, and when mistakes are made by others, they shift the focus from blaming to learning. They fearlessly confront reality. They regularly conduct strategic learning sessions, inviting wide participation, and act on the outcomes. They deliberately create a culture of openness and trust.

If we aim to create organizations propelled by ongoing adaptation and renewal, there is no greater need than learning how to learn.

The Oil Spill And Community Leadership

Wednesday, June 30, 2010

The calamitous oil spill in the Gulf of Mexico has brought some big policy issues into sharp focus. What should be the US’s long term energy policy? How can we more effectively protect our environment? What should be the role of off-shore drilling and how can we drill more safely? These are not new questions. Suddenly, however, they are no longer abstract, but painfully real. And we don’t yet have good answers. These issues have been evaded for too long, as the politicians repeatedly kicked the can down the road. We must push our political leaders to address these challenges forthrightly and now. We deserve no less.

But beyond policy-making, there is a second challenge that is testing our mettle – a leadership challenge. And to be frank, we have not done at all well on this score either. Here, I am not talking about the President and our political leaders. I am talking about us, all of us, as a community.

Let’s take stock. The oil spill inflicted (and continues to inflict) huge damage to what we own in common – our natural environment. This in turn has produced devastating economic and human consequences. Shock and outrage were the understandable reactions. A torrent of anger was aimed at BP, the oil company responsible for the spill. BP immediately accepted responsibility, saying it would pay all legitimate claims and devote all possible resources to the clean-up. But as estimates of the damage escalated, the resentment grew.

These are all natural human reactions to shock. But then something momentous happened. Instead of turning this outrage into positive energy, we allowed our anger to turn inward on itself. We began to tear ourselves apart. The rhetoric turned mean. The airwaves were filled with finger-pointing, ridicule, fault-finding, suspicion and demonizing. Everything that was said or done by anyone trying to deal with the problem – from the President on down -- was met with automatic criticism and derision. Objectivity (probably the most important element in a crisis) was ditched. The criticism of President Obama was emblematic. The demand was not that he be more effective, but that he show more anger.

So why does all this matter? For a very simple reason. When a society is hit with a crisis, the real test becomes how well it can muster mutual support and cooperation to overcome the setback. The ability to pull together becomes decisive. The lower the level of cooperation, the lower the odds of success. The literature on corporate turnarounds is replete with examples of this fundamental truth. A company is simply a social system at a micro level. The same factors apply to societies at a macro level. The question we must ask ourselves is why we have not applied these lessons to the way we are responding to the oil spill crisis.

Farmers’ wisdom

Folklore from farmers gives us the best guidance on how to deal effectively with a crisis. If your cow lands in the ditch, then you should follow 3 simple sequential steps:

1) Get the cow out of the ditch

2) Understand how the cow got into the ditch

3) Make sure the cow doesn’t get into the ditch again

Getting the cow out of the ditch must be the first order of business. This can seldom be achieved by a farmer acting alone. It would require cooperation from others, all dedicated to that common cause, all contributing their best ideas, not wasting their energies on blame but focusing on mutual encouragement, speed and effectiveness.

Understanding how the cow got into the ditch (what the US Army calls the “After Action Review”) requires a process of rigorous examination, the preparedness to accept accountability and the ability to learn. It takes a cool head and straight thinking. It is absolutely right that BP is held accountable for its actions and that the victims are compensated. But it is equally important, as it is for the farmer, that the long term value of the learning is bigger than the cost of the mistake.

The third step is preventive. Here the farmer must guard against over-reaction or under-reaction. Most worthwhile endeavors require some element of risk. Preventive actions involve trade-offs between risk and reward. We can never completely eliminate risk. The key is to minimize risk and maximize reward.

These rules of success are deceptively simple, yet crucial. They apply with equal validity to farmers, commercial and non-profit organizations and to society at large. They require that each of us takes on a leadership role. Yes, we are entitled to insist that those above us in the chain of command lead us well. But this alone is not enough. Such a view rests on a false assumption: that effective leadership is solely a matter of leading down, an exclusive responsibility of those at the top; and that those of us below are simply helpless victims of what our leaders alone can and cannot do.

The three-dimensional elements of leadership

The evidence shows that effective leadership has three dimensions: leading up, leading across, and leading down. Leadership is not about power. It is about responsibility. When our society or company is tested by a crisis, it becomes crucial for each of us to take on the responsibility for all three dimensions of leadership. We need first and foremost to commit to the common cause. Based on that commitment, we need to help those at the top lead us better by providing ideas and constructive support, including volunteering. We need to collaborate laterally with those over whom we have no positional authority. And of course, it is vital for us to provide focus and inspiration for those below us in the hierarchy – for the teams we are asked to lead. All great endeavors require this call to action. No one should just sit on the sidelines doing nothing but shout criticisms. Ted Turner famously has a sign on his desk, “Lead, follow, or get out of the way.”

Progress requires critical self-examination. How well are we dealing with the oil spill crisis? It seems to me that based on the above criteria we have fallen short of effective community leadership; not absolutely, but as a matter of balance. We need to recover the right mix of assessing problems and offering solutions, of handing out criticism and recognizing progress, of clarifying what we expect of others and being clear about what we expect of ourselves. David Ogilvy, the founder of the great advertising agency, Ogilvy and Mather, used to make the plea for “divine discontent,” readily pointing out lapses, but always offering a better way.

Our biggest worry must be what a barrage of undiluted and often unfair criticism will do to our collective spirit. Napoleon, the most successful general in modern history was asked which mattered more in the conduct of war, physical or spiritual resources. He reportedly answered, “spiritual resources by a factor of 3 to 1.” He was simply repeating a truth known to every general. When the spirit of an army is gone, the war is lost.

The acid test

When I think about the essence of leadership, I recall an interview I saw on television of a linebacker who had played on the same team as the famous quarterback, Joe Montana, during the glory days of the San Francisco 49ers. He was asked, “What did it feel like to play on the same team as Joe Montana?” His answer, “When Joe was on the team, I played better.”

Therein lies our ultimate test. We are tackling a daunting problem. By virtue of what we personally say and do, is everyone else playing better? Over the long haul, will the value of our collective learning exceed the cost of this mistake? The answer to these questions will depend on our individual leadership effectiveness – above all what we expect of ourselves, not just what we demand of others.

Learning From Volcanic Ash

Monday, April 19, 2010

The Strategic Learning process stresses the importance of sense-making in an uncertain world. It is an insight – to – action model, a “sense and respond” approach to strategy creation. Embedded in the process is a critical starting point for all strategic decisions, a technique I call a Situation Analysis, a systematic way to generate insights as the platform for informed action.

Let’s apply this technique to the current volcanic ash crisis.

To start with, this is a jolting reminder that not everything that happens to us can be predicted. Revolutions are happening all the time, and there are two kinds: gradual revolutions (e.g. the rise of Asian purchasing power) and sudden revolutions (e.g. the recent economic meltdown). Nothing stays the same. At the end of the day, both kinds of revolution can be equally disruptive, but discontinuities of a gradual kind at least afford the time for more deliberate reflection and stock-taking.

The volcano in Iceland and its devastating global effects is a classical example of a sudden revolution. No one predicted it; and its implications have been far reaching, surprising, and very revealing. It has essentially laid bare the nature of our intricate, interconnected global system, how it works, and what its vulnerabilities are. It has reminded us that some of the elements we take for granted are in fact critical dependencies, and that we need to understand and manage them more explicitly. This calls for systems thinking – applying the power of synthesis (seeing vital connections), rather than pure analysis (breaking things down).

The way I view it, this crisis has demonstrated how the effective functioning of the global social and economic system has become crucially dependent on the unrestricted movement of three elements: people, things and information. A breakdown of any one of the three elements compromises the total system. It is, in its characteristics and behavior, a classical ecosystem.

The first part of the drama was all about the movement of people – stories of people stranded, separated from family, unable to attend weddings (sometimes their own) or funerals, or business meetings or sports events, people sleeping at airports, running out of money, suffering from the anxiety of not knowing when things will change, not being able to plan ahead in the usual way. The breakdown in the movement of people is sure to have some economic impact based on a loss of productivity, but the main effects seem to be delays, inconveniences and social costs.

The second part of the drama started to highlight the problems associated with the inability to move things (at least at the speed we were reliant on). Stories emerged about flowers and fruit perishing in airport warehouses, then of shortages of various things, including medical items. We began to see the vulnerabilities of supply chains being operated as global “just in time” systems. We can imagine the calls to FedEx, DHL or UPS from operations executives demanding action as their factories are halted by the stoppage in the overnight flow of materials or parts. We are starting to see the frustration of consumers who are not able to buy the end products of this supply chain. Perhaps the biggest and most immediate impact is on the airlines themselves – when they can’t move, they cannot generate any revenue at all. By one estimate, they are collectively losing $250 million for every day they are grounded. If this goes on for much longer, some of them will run out of cash and collapse. The economic damage from the inability to move things in the usual way could prove to be major.

The third critical element for the efficient functioning of our global system is the movement of information. I have just spoken to my son, Chris, in London. He is in the private equity business and has to move almost constantly around Europe and the Middle East. In the immediate future, that is likely to be impossible, so he has developed contingency plans to communicate via telephone calls and video conferences. This greater reliance on IT during this crisis is likely to become a pattern for business people the world over. But herein lies our most serious vulnerability. Chris, like the rest of us, is simply taking this IT capability for granted. But what if our information and communication system breaks down? Just look at what happened during that 2003 electricity blackout in the NE of the USA. Much has been written about “cyber warfare” or the wanton damage that can be caused by a talented hacker – for example to our military or banking systems. It’s a scary prospect.

It is reassuring to know that while volcanic ash can stop the efficient movement of people and things, it cannot stop the movement of information, and that we can rely on the movement of information to help offset stoppages in these other two elements. But it is also a chilling reminder of the potentially catastrophic consequences of compromises to our IT systems, and of the dangers of reducing our vigilance on protecting its integrity.

So we come full circle. Not everything can be predicted. Sudden, unexpected shocks are part of the game. Our task is to build our readiness -- our capacity to respond, learn and move on.

Our ultimate lesson is that our ability to deal successfully with an unexpected crisis is a direct legacy of how we manage our organizations and ourselves in good times. When we are in the midst of a crisis, it’s too late to try and build resilience. Managing successfully through a crisis involves drawing on the reserves of strength we have built up over time. A good example is ExxonMobil. That company is always strengthening its fundamentals of safety, operational efficiency, risk management and investment discipline in good times and bad. When oil prices spiked and then dropped dramatically in 2007/8, ExxonMobil took a temporary hit, but continued to out-perform its main competitors. It was simply more resilient. Consider the mounting of a Broadway production. There are months and months of rehearsals, and then a day of rest the day before the opening. By then it’s all in place. How well the production does, how well it copes with mistakes and setbacks and recovers its poise, is all a function of what went before.

As Aristotle taught us, “We are what we repeatedly do. Excellence is not an act, but a habit.”

The Toyota Saga

Friday, February 26, 2010

Much has been written about Toyota's quality problems and massive product recalls.

Why is this such big news? Surely product recalls are quite common? True enough. But Toyota has built its reputation on quality and reliability -- that's what its brand stands for. The fact is that this sounds to customers like a broken promise and that's the drama.

What are the lessons learned? The story is still playing out, but some stark lessons are emerging:

- It sounds as if Toyota tried for some time to hide the problems from its customers. This has created an atmosphere of suspicion. Have they come clean now? What else may they be hiding? Brands are based on trust, and Toyota has allowed that trust to be tarnished. The lesson here: the integrity of a truth depends on when you tell it. If at first you resist the truth and then have it exracted from you, its value is severely diminished.

- It also appears that -- at least for a while -- Toyata hid the truth from itself, perhaps the greater sin. To be in a position to tell the truth to the outside world, you first have to tell it to yourself. This is perhaps a result of a culture of intense respect for authority and the reluctance to offend by telling truth to power. Toyota inculcates a culture of learning in its plants, but seems not to have applied that same behavior throughout the organization. We're back to a critical lesson: organizational culture is a big deal. Too often we see companies stumble, not because of a poor financial decison, but because of organizational behavior.

- Many of the news articles have simply blamed the much admired Toyota Production System (TPS) for the quality lapses. I suggest this is a misdiagnosis. It is too early to know the complete story, but as of now, I have not heard any supporting evidence for this claim. It seems to me that the problem was an engineering, not manufacturing problem. Every indication is that the assembly plants did exactly what was expected of them: manufacure to the specifications which were defined for them. So let's pause and think before we learn the wrong lesson.