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CHAPTER 1

Are You Strategic?

An Introduction to the Nature, Purpose, and Scope of Strategic Thinking

The most important thing is to find out what is the most important thing.

— Shunryu Suzuki

Q: What is one characteristic of strategy that is essential to understand, yet is mostly overlooked, even by expert strategists?

A: Ambiguity

THE LATIN ROOTS of the word ambiguity suggest wandering, uncertainty, and multiple meanings. An example of ambiguity is found in Figure 1-1, a graphic that many know as “the young lady and the old lady.” It is one of many examples of a quaint form of graphic design known as pictorial ambiguity. Some people can only see the old lady, and some can only see the young lady. (Hints: The young lady is looking away from you, and the old lady is looking downward. The young lady’s chin is the tip of the old lady’s nose.) It takes an effort to resolve ambiguity.

Another example of ambiguity is multiple definitions of words. For example, the three-letter words run and set have meanings that can only be understood by placing the words in sentences or paragraphs. The word strategy itself is ambiguous. Many people define its meaning in partial ways: as the opposite of a tactic, as another name for a goal, as the steps to reach a goal, as a process tied to the organization’s calendar, as a plan, as a methodology, etc.

Figure 1-1. An example of pictorial ambiguity. Can you see the two faces?

Ambiguity is inherent to strategy. From an entrepreneur’s perspective, ambiguity is the source of opportunity and competitive advantage. An example is a young Steve Jobs visiting Xerox Corporation’s Palo Alto lab in California There, he was shown prototypes of the now familiar computer mouse and graphical interface. Recognizing the potential of the technology, Jobs incorporated the ideas into Apple’s new line of computers.

People get signals from all directions but don’t know whether to ignore them or to attach great significance to them. Is the data in the government’s report on the economy a signal that a trend is starting or ending? Is a new technology going to fizzle or disrupt? Are the signals a threat, an opportunity, or both? Will the new CEO use the same approach as she used at her previous company?

Sometimes people take time from their busy lives to consider questions like those just posed. However, most people find it more comfortable to pay attention to those things that are simple, immediate, and unambiguous. Stated differently, most individuals (managers and executives included) cope with ambiguity by neglecting it most of the time. The reason for the neglect is obvious: ambiguity mentally taxes a person. Consider your reaction to Figure 1-1. If you’re like most, once you saw one of the faces, you allowed your attention to shift to something else.

Returning to the Steve Jobs example, the top Xerox executives in headquarters could have chosen to exploit these inventions but instead focused on their existing operations. They didn’t see the potential. Maybe the Xerox executives only saw one of the faces in Figure 1-1, and Jobs saw both?

Volatility, uncertainty, complexity, and ambiguity (VUCA) is a common framework used to describe the indeterminant and dynamic nature of strategic situations. (You can learn more about VUCA in Appendix A.) The strategist must consider VUCA and be able to distinguish it from conventional, goal-oriented planning.

One technique for resolving ambiguity is the straightforward practice of defining terms. Accordingly, I must next explain the meanings of two essential concepts of strategic thinking, which are the words competence and strategy.

Competence

This book’s big idea is that individuals are the sole practitioners of strategic thinking, and each person practices it in a way that can be judged as competent or not. Competent individuals have the capacity and ability to understand a situation and act reasonably. Let’s unpack the three main components.

Competent individuals have the capacity and ability to understand a situation and act reasonably.

Individual capacity. Stating the obvious, individuals are unique. Each person has her life experiences, formal education, and own stylistic approach to dealing with people and situations. People vary in the degree to which they are curious, analytical, open-minded, creative, and disciplined. Strategic thinking is a habit of mind, a mental stance reflecting the individual’s perspective.

Competent strategic thinking is a personal characteristic that is independent of a person’s rank in an organization. This is an empowering concept where every person in the organization can develop their habits of mind and contribute in small and large ways to the organization’s strategy and operations.

The obstacles to competent strategic thinking are generally twofold: the individual’s natural inclinations for mental ease coupled with the smothering effects of the prevailing culture. The neglect of ambiguity is one example of mental ease. Organizational culture is a powerful force for the status quo and a restraining force for individual initiative. It takes considerable effort to overcome orthodoxy, dogma, and mediocrity. Any individual who shows herself contrary to the norms might be subject to teasing, shaming, or ostracism.

Fortunately for the promotion of strategic thinking, progressive organizations value leadership, innovation, diversity, sound judgment, collaboration, and empowerment. Unfortunately, the traditional organization-as-machine and institutional concepts retain much power in many ongoing narratives.

Understanding the situation. The jargon phrases tunnel vision, lost in the weeds, and silo mentality are common in most organizations, especially larger ones. Many managers are unwittingly committed to inertia, doing things the same way that they’ve always been done, through habits of mind reinforced by the organization’s culture. People may understand their local situation but often have an incomplete understanding of the organization’s place in a more extensive ecosystem of relationships.

Acting reasonably. Figure 1-2 lists some criteria useful for determining the reasonableness of actions. A reasonable person can justify her beliefs and actions. Importantly, not everyone has the same concept of reasonableness, since ambiguity can lead to different interpretations. One person may look at a situation and arrive at a conclusion that’s different from that of others. If 99 percent of people see only the face of the old lady, it doesn’t mean that the 1 percent who see the young lady are wrong.

Figure 1-2. Characteristics of a reasonable person.

Strategy

Asking “What is strategy?” will provoke many answers among academics and practitioners.* The idea of sustainable competitive advantage, a dominating idea of for-profit organizational strategy, is of little relevance for a startup entrepreneur, a school principal, a military field commander, a county commissioner, a pastor, or a middle manager. The template-driven practices of long-range planning used in many bureaucratic institutions is a time waster for a company operating in a VUCA world of continually-emerging opportunities.

Here is the definition of strategy that guides our understanding of the nature, purpose, and scope of strategic thinking:

Strategy is a specialized tool used to advance the interests of the organization by managing issues that have a broad and long-term impact.

This definition of strategy is broadly applicable to any organization: big and small business, the military, the government, nonprofits, political campaigns. It’s appropriate for bureaucracies and for entrepreneurs. It’s relevant to explaining the actions of any organization throughout history.

The following four main ideas characterize strategy:

• The first main idea is that strategy is a specialized tool. As a specialized tool, strategy is appropriate for some situations and not for others. Strategy’s primary concern is fitting the internal resources to the situation of emerging, significant opportunities and threats. The need for strategy arises from dynamic change in the external environment.

• The second main idea is the premise that all organizations (businesses, governments, nonprofits, militaries, charities, churches, schools, etc.) have interests. For example, a school’s interests could include educating its students and fostering a more productive and civil community. Many businesses have obligations to shareholders but also intend to contribute to society’s interests. Interests can and do change, sometimes deliberately, but sometimes they drift in a new direction on their own, unrecognized by stakeholders.

Strategy is practiced to advance the interests of the organization.

• The third main idea is that managers must confront issues in order to advance the organization’s interests. The concept of an issue can include exploiting opportunities as well as mitigating threats. An essential task is to scan for weak signals and determine the need for further action. The issues may be present-moment battles, or things that loom with future significance. After the issue is identified, it’s characterized, prioritized, and resolved by making decisions and applying resources.

This focus on confronting issues and advancing interests is usefully reinforced by this simple, powerful concept of strategy taught in the U.S. Army War College:

Conceptually, we define strategy as the relationship among ends, ways, and means. Ends are the objectives or goals sought. Means are the resources available to pursue the objectives. And ways or methods are how one organizes and applies the resources. Each of these components suggests a related question. What do we want to pursue (ends)? With what (means)? How (ways)?

Strategy is a relationship among ends, ways, and means.

In the next chapter, I apply these concepts of issues and interests and their relationships with ends, ways, and means and show how to write strategy.

• The fourth main idea characterizing strategy is that some organizational issues have broad and long-term impacts and other issues don’t. This fourth main idea reinforces the first, that strategy is a specialized tool. The issues that are narrower in scope and more day-to-day are usually better handled through operations management, as discussed in the next paragraphs.

Run the business or change the business? I earlier wrote that strategy was a specialized tool for appropriate situations. The inappropriate situations for using strategy are ongoing operations.

A person working in operations is operating a system to deliver results to its customers. A person with an operational focus typically attends to short-term, narrow issues and relies on the managerial tools of goal setting, budgeting, delegation, prioritization, benchmarking, and continuous incremental improvement. Productivity, optimization, and stability are salient values.

In contrast to operations and its emphasis on “running the business,” strategy focuses on “changing the business.” Stated differently, operations involves working “in” the organization whereas strategy involves working “on” the organization’s fit with the external environment.

Balancing action and conceptualization. You can easily find, especially in entrenched operations, people who are openly dismissive of abstract concepts such as the future, competitive fit, or insight. Jerry Rhodes observes, “There is a die-hard attitude that still survives in many managers that thinking smells of the abstract and must be the enemy of action.” They are the people who buy and gift things such as the coffee mug in Figure 1-3 that boldly pronounces, “We have a strategic plan. It’s called doing things.” They are the same people who will say, as an excuse for narrow framing and a short-term orientation, “I’m too busy to think about anything other than what’s right in front of me.”

Figure 1-3. An example of celebrating action over thoughtfulness.

There are undoubtedly good reasons for valuing action, practicality, and simplicity. However, some managers are impulsive, dogmatic, stubborn, and lazy. There must be a role for thoughtfulness and nuance, and elevating these values enhances the cultural embrace of strategic thinking.

Setting the agenda. Numerous broad and long-term strategic issues originate externally to the organization. There are also issues related to the internal capabilities, resources, and aspirations of the organization. Which issues are worthy of being placed on the organization’s agenda for action?

Top management has essential responsibilities for shaping the strategic agenda. One responsibility is to participate in, champion, and sponsor the search for weak signals. Ideally, all members of the organization are encouraged to be curious. With more eyes engaged in scanning the internal and external environment, the organization has available more potentially useful information for its strategy. Ideally, each person also understands the issues and how her contributions align with strategy and with operations. When it’s time to launch a new strategy, people are better able to understand the rationale for the strategy.

A second responsibility is to determine the organization’s core challenge and help stakeholders understand that core challenge.

Third, top management must make the essential decisions about where to focus scarce resources. With this responsibility, top management also has a critical governance function to help guide the decentralized execution of its policy decisions.

While strategy requires a certain amount of centralization in decision making, strategic thinking is not the exclusive responsibility of a “strategic level.” Anyone can think strategically, and if empowered, anyone can act strategically, too. And, as part of a virtuous loop, strategic thinking increases individual empowerment, and empowered individuals are more apt to want to think strategically.

Strategy and Strategic Thinking in Action

Good examples of strategic thinking are easy to find in popular media, history, sports, political campaigns, and elsewhere. The movie and book Moneyball is a story about a brilliant strategy developed by an unorthodox leader willing to challenge conventional beliefs. The movie opens with a challenge to Billy Beane, the general manager of the Oakland A’s professional baseball team. The team is under new ownership, and the new owners are unwilling to continue absorbing financial losses. The owners tell Beane to reduce his payroll.^† But he must also find a way to field a winning team.

Since some readers may not know (or care) much about the business model of American professional baseball, a little background will help to explain why Beane innovated the Moneyball strategy. The essence of the game is a contest between the pitcher and the batter. The pitcher throws a ball to a target with velocity and curving movement and the batter swings to hit the pitched ball. If the batter successfully makes contact and places the ball into the field of play, the defensive players attempt to execute a play to keep the batter from taking a position on the base. Each pitch, each swing of the bat, and each struck ball influence the outcome of the game.

The game has many traditions. Since the game’s origination in the 19th century, scorers have constructed a set of metrics, such as runs batted in (RBI). Those indicators became part of the lore of the game and a basis for making business decisions in negotiating contracts. Management pays high salaries to players with high RBIs.

There is a significant disparity between the financial resources of each professional team. This is because some owners have more financial wealth than others, some local markets are more loyal than others, and some teams have a national following as well as a local market. A few so-called superstar players can negotiate and receive extraordinarily high salaries, many multiples better than average players. If the rich teams overpay, they seem not to care; they’re rich.

Given the new owners’ budget restrictions, the Oakland A’s were unable to compete in the marketplace for superstar talent. Their best players obtained lucrative contracts with richer teams such as the New York Yankees or the Boston Red Sox.

Billy Beane believed that his rivals were not valuing talent correctly, and that he could exploit his better knowledge. A growing body of evidence showed that traditional indicators, such as RBI, overvalued the contribution of the hitter and undervalued luck and other factors beyond the hitter’s control. His insight was that conventional indicators influenced teams to overpay their talent. In other words, the marketplace for baseball talent was inefficient. Beane wanted to exploit his rivals’ ignorance (or their complacency; it’s hard to tell the difference). His policy was to secure the contracts of undervalued players and deal away overvalued players.

Oakland’s Moneyball strategy was effective and produced an exceptional result: over a multiple-year period, Oakland won more regular season games than any other team (except the Atlanta Braves) and reached the playoffs several years in a row. They did this with the lowest payroll in the industry.

The strategic-thinking narrative for Billy Beane and the Oakland A’s organization reveals several lessons for good strategy, which are applicable to many other situations and organizations. Here are seven:

• They recognized the reality of their situation. Their rivals had comparatively immense resources. If the Oakland A’s used conventional thinking, they would have little chance of being successful. A line from the movie captures the requirement for unconventional (strategic) thinking, “If we think like the Yankees in here [referring to a competitor and the criteria for drafting players], we will lose to the Yankees out there [on the playing field].”

• They found and applied insights. Building off the hypothesis that the marketplace for baseball talent is inefficient, Oakland expanded the use of sabermetrics, the empirical analysis of in-game activity in baseball. Sabermetrics originated with a group of hobbyists who played fantasy baseball (also called Rotisserie leagues). The owners of these fantasy teams would compose teams based on actual players, and then compete based on the real players’ actual performance on the field. Sabermetrics, with 20 years of publications, was not a secret weapon. Any of Oakland’s rivals could have exploited it.

This outside-the-mainstream innovation provided specific, actionable insights that allowed Oakland to construct a new competitive logic.

• They developed a new set of dominating ideas. Some ideas are more important than others, and a new strategy is a configuration of elements. For Oakland, the dominating ideas included these: nontraditional statistics could model a player’s performance, the average player usually performed to his statistical average, the market for talent was inefficient in that rivals were willing to overspend for performance, and shrewd negotiation could acquire undervalued talent.

The logic of baseball offense is straightforward: the presence of a runner on base increases the likelihood of scoring runs, and the more runs scored, the more games won. Oakland’s strategic logic emphasized getting the maximum offensive productivity possible for the minimum payroll dollar. Their premise was that getting runners on base was the key to winning games. In their model for the 2002 season, they estimated that scoring 800 to 820 runs would allow them to win between 93 and 97 games. To achieve this offensive productivity, they emphasized finding and coaching players to get on base and score runs. The most straightforward means to this strategy was to find players with high on-base percentages, subject to a design constraint of payroll affordability.

A new strategy has a new dominating idea that organizes its logic.

The dominating ideas of the Moneyball strategy stand in contrast to the traditional approaches: scouts assess the talent, managers organize the players on the roster, a player’s salary reflects his productivity.

The emergence of new dominating ideas implies that any given strategy may have a short shelf-life. Conditions change, causing misfit, and internal capabilities develop to yield new advantages.

• They decided what they were going to do and, importantly, not do. Oakland decided that they were not going to contract highly-paid superstar players and would instead apply their limited payroll to undervalued hitters. A strategy’s power comes from coherent design: it’s the focus on certain leverage points and the willingness to stop doing traditional activities that don’t support the new strategy. A good strategy is a systematic, orchestrated, coherent effort by the entire organization.

• They used data to suppress cognitive bias. The prevailing system in Major League Baseball placed much power in the ability of professional scouts to judge the potential of a prospective player. Most scouts worked intuitively, many of them holding to the illusion that physical appearance is predictive of the player’s ability. Oakland’s strategy included a belief that empiricism was a better predictor of performance than subjective intuition.

• They placed smart bets. A good strategy is a bet or a series of bets. Some bets may pay off, and some may not.

Each of Oakland’s unconventional trades was a bet, testing the idea that a team could measure productivity as a function of payroll expense and configure a productive offense at minimum cost. Many of those resource-configuration bets were failures, but some paid off spectacularly.

The Moneyball strategy itself was a bet that a new dominating idea could prevail. Over time, and with continuous experimentation, Oakland improved its understanding of performance and gained an advantage.

• The strategy was novel. The Moneyball strategy did not emerge from writing statements of mission, vision, and values. The strategy didn’t originate with facilitated organizational retreats, budgeting, and SWOT^‡ brainstorming or other so-called best practices of strategic planning.

One lesson of this strategic-thinking narrative is the unique perspective of an individual. Billy Beane was not from an elite educational background (he skipped college to accept a professional baseball contract). His success came from sound principles: he confronted the reality of his situation, he was curious and opportunistic, he developed a unique commonsense, he looked outside of conventions for new ideas, and he leveraged his resources and his know-how.

The Moneyball story is well known. Many writers commonly use it as an example of the potential of technology: big data, data mining, and analytics. The strategic-thinking narrative is an alternative theme, which is that a good strategy’s roots are with individuals who perceive the situation more accurately than others. Good strategy has its origins in the fairly prosaic activities of scanning the environment, noticing curiosities, analyzing with a skeptical eye, deliberating with others on the situation, and designing a path forward. However, it’s also a matter of luck and placing yourself where you can benefit from the emergence of opportunity.

Good strategic thinkers are skeptical of conventional management wisdom, borrow external ideas and innovations, and construct new strategic logics. I regularly hear people who exalt the idea of leadership vision, and cite as examples the genius of Steve Jobs and more contemporary business leaders such as Mary Barra, Elon Musk, and Jeff Bezos. There’s much to admire about these people, but they’re not freaks of nature. They’re not seers who predict the future, nor are they wizards who magically create it. A more accurate story is that they’re reasonably intelligent people who are open to novel ideas, are opportunistic, and focus on the essential actions needed for future success.

The worlds of strategy and leadership have many tropes,^§ and it’s important to be skeptical of them. Conventional thinkers prefer neat, compact stories. They like to attribute outcomes to a person’s character or as a supernatural gift of vision. The hard work of analysis and reframing are much better explanations for the sources of good strategic thinking.

You’ll see other examples of strategic thinkers in this book, and I encourage you to search for them in movies, books, and your own life. An individual who holds a nuanced understanding of the situation and is willing to make tough choices about focus is more likely to craft good strategy.

How to Construct a Strategic-Thinking Narrative

The strategic-thinking narrative is a useful tool for understanding the creation of strategy as a competent response to a situation. The idea is straightforward. First, find a real-world example of organizational success or failure. Questions like this can help you identify the main elements:

• Who are the main and supporting characters?

• What is the context for the story?

• What is the core challenge they face?

• What are the tensions?

• What insights did the characters acquire?

• What decisions did they make?

• How did they experiment and adapt?

You can discover a narrative of strategy in every story of success or of failure.

Answers to these questions provide a useful deepening of understanding about the source of the strategy. For example, the Moneyball strategy did not spring into Billy Beane’s mind fully formed. Billy Beane was exposed to sabermetrics ideas years earlier by his predecessor general manager at Oakland, Sandy Alderson. Going back further in time, sabermetrics approaches predated the events in the movie by at least 20 years. If Billy Beane was the father of the Moneyball strategy, Alderson was its grandfather. Bill James, who started writing about baseball statistics in the 1970s, was its great-grandfather. Like many other innovations, much time passes between the initial development of a good idea and that idea’s fully realized benefits.

Are You Strategic?

Many people have been told in their performance reviews, “You need to be more strategic.” With a definite tone of frustration in their voices, they ask, “What do you mean be more strategic?”

The phrase be more strategic likely was not meant to invite the person to participate in developing enterprise strategy. The speaker more likely intended it as an instruction to enlarge one’s perspective, to be less absorbed in their specialized daily work, and to coordinate their efforts with the efforts of others, including sacrificing their personal efficiency to serve the broader interests of the organization.

Strategic things ought to be connected to strategy and not status.

In this sense, a person who is more strategic holds a more systematic view of the organization and its fit with the external environment. She has learned the structures and disciplines that characterize her organization and its context of stakeholders, suppliers, regulators, and the like. With this knowledge, she is able to more adroitly coordinate her activities with others.

As an adjective, the word strategic is often used as a decoration – for example, strategic leadership, strategic plans, strategic decisions, and strategic markets. Mostly, when people use strategic as an adjective, they are signaling their opinion of the importance of the noun being modified. Used this way, the adjective strategic is self-indulgent, and many people use it to advance their personal status within the organization.

Most organizations have too many strategic things, a cacophony of goals and aspirations in competition with each other. The indiscriminate use of the adjective strategic adds to the ambiguity and doesn’t reduce it. Ideally, the adjective strategic should link to the organization’s strategy, and ideally the organization’s strategy should be good and not bad.

Emptying the Mind of Preconceptions

The knowledge and experience that have served you well in the past might anchor you to no-longer-relevant stories and conventions, causing you to neglect new learnings. Your intuition might make you complacent.

Adopt the ideas of Shoshin as a preferred approach to learning to think strategically. Shoshin is the Zen Buddhism concept of encouraging a beginner’s mind, which is a mindset that resembles a child who is discovering something for the first time. Your beginner’s mind is enhanced when you:

• Let go of rigid distinctions of what is right and wrong

• Eliminate expectations of what will happen

• Fill yourself with curiosity to understand more deeply

• Open yourself to new possibilities

• Ask simple questions

• Are open to possibilities

To learn to think strategically is not an exercise in rote memorization. It’s not stuffing your memory with a stack of facts about strategic frameworks and best practices. Instead, you cultivate an enthusiasm for the undiscovered and novel. You’re optimistic that someone can find a better way of doing things, and you know that step jumps can be better than incremental improvement. Start by emptying your mind of preconceptions and recognize the presence of ambiguity.

This chapter has introduced you to several important ideas about the nature, purpose, and scope of strategic thinking. It started with the underappreciated presence of ambiguity and concluded with a call for Shoshin. Along the way, I defined several essential concepts relating to competent strategic thinking.

In the next chapter, I more closely examine ambiguity as it affects strategy, goals, and plans. I take Chapter 1’s explanation of strategy as the inter-relationship of ends, ways, and means and use that to explain cleverness and to distinguish goals and plans from strategy. Finally, I examine the crafting of strategy and review a written statement of Oakland’s Moneyball strategy.

* There are many schools of thought on strategy. This definition of strategy is consistent throughout the book and coherently supports a model of strategic thinking as an individual competency.

^† The movie captures the essential narrative of the use of Moneyball as a strategy, although it does deviate from the book in many important ways. My paraphrasing combines the events from the movie and the book.

^‡ SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.

^§ We use the word trope in the sense of a common and over-used theme or tool of rhetoric.