One of my favorite writers on the topic of strategy is Roger Martin from the Rotman School of Management.  He recently published a short piece in the Harvard Business Review entitled “Why Smart People Struggle with Strategy.”

In it, he perfectly describes the strategist’s dilemma:

Strategy requires making choices about an uncertain future. It is not possible, no matter how much of the ocean you boil, to discover the one right answer. There isn’t one. In fact, even after the fact, there is no way to determine that one’s strategy choice was “right,” because there is no way to judge the relative quality of any path against all the paths not actually chosen. There are no double-blind experiments in strategy.

Bounded Rationality

Herbert Simon – the polymath computer scientist, economist, political scientist, sociologist, and psychologist – described this state of not knowing back in the 1950’s as “bounded rationality.”  He was fond of saying that “I don’t care how big and fast computers are, they’re not as big and fast as the world.”

If you accept the premise of bounded rationality (and unless you’re omniscient then you pretty much have to), then what’s a strategist to do?  Well of course, you can collect more information about your strategic situation – your organization’s capabilities and how they match up with the ever changing outside world. After all, even if you can’t know everything about a strategic situation, that doesn’t mean learning more about it isn’t helpful.     

This is where EQ – or emotional intelligence – become essential.  Leaders need to have the wisdom to realize that they can’t possibly have all the answers.

Strategic Conversations

In our book Strategic Conversations, J.-C. Spender and I argue that the best strategies arise when leaders consult the people who deal with customers, competitors, and partners everyday – employees.  Employees have knowledge of the strategic situation to which senior leaders simply don’t have direct access.

If this idea seems impractical – perhaps you have images of tens of thousands of employees trying to stuff themselves in board rooms – it’s been done, and done well, in organizations both small and very, very large.

One technique we’ve seen used is “strategy reviews” where everyone in the organization is invited to critique draft strategies.  Strategy reviews are used extensively at HCL Technologies, a large Indian global IT services company.  HCL’s CEO Vineet Nayar has been keen to empower employees in what he calls the “value zone” – the interaction between employees and customers, far away from the CEO’s seat. So he introduced a review platform and process called “My Blueprint,” designed to force-multiply the strategy process by giving everyone in the company the opportunity to shape the company’s direction.  The fiscal year 2010 plans, for example, were reviewed and commented on by 8,000 people throughout the organization. That feedback resulted in significant re-designs of several of those business plans.

Vineet Nayar of HCL is a very smart man, but he has surrendered any notion that he sits on what he has called “God’s seat.” He’s acknowledge that it is impossible for a single person, or even 100 boardroom types, to create strategy effectively in a large global organization like HCL.

While this type of strategic conversation isn’t common, at least yet, HCL’s case is not unique. Red Hat, the open source software company, has used this technique to involve its employees in strategy, even to the extent of having the company’s mission statement edited by employees.

Another technique we’ve observed for bringing employee knowledge into the strategic conversation is “innovation communities.  Using innovation communities, Best Buy managed to engage thousands of employees – and numerous customers as well – in redesigning the customer experience for women customers.  They did so be creating what they called “Wolf Packs,” groups of employees that were focused on enhancing 1) female revenue, 2) internal female retention, and 3) internal female recruitment.

To appeal to female consumers, the packs suggested training greeters to make eye contact with women coming into the stores, improving lighting in stores, and adding more women-oriented displays. Another idea put into practice was a pamphlet for parents about internet safety for children. One WOLF Pack came up with the idea for a line of Liz Claiborne bags and accessories for laptops, phones, MP3s and cameras. Recognizing that highly organized women often get holiday shopping done early, Best Buy extended its normal thirty- day return policy to run through January 25 for purchases made after November 1.

The results were powerful:

  • revenue generated by females increased by more than $4.4 billion in less than the five years;
  • female market share increased from 14.7% in Q1 2006 to 17.1% in Q1 2008;
  • female turnover was reduced company-wide by over 5% each year;
  • female recruits increased by more than 37% in areas where WOLF Packs existed;
  • female district managers increased by 300% and where no female executives existed in retail prior to WOLF, and as of 2009 there were an unprecedented two out of the eight Best Buy territories in the US led by women executives;
  • brand perception of Best Buy increased by four points from the baseline;
  • to top it off, it turns out that women customers’ business was more profitable than the men’s; women’s return rate was 60% lower than the men’s.

There are plenty more examples of organizations using employees to increase their knowledge of the strategic situation and avoiding the “mono-culture” mistake of just relying on the C-suite and management consultants to create strategy.

Shaping and persuading

Whether an organization uses strategy reviews, innovation communities, or any of the other techniques we document in Strategic Conversations to engage employees, there is still more to be done. To be effective, leaders must go beyond merely eliciting strategic thinking from employees.  The leader also needs shape those conversations.  Without shaping the conversation – for instance in the HCL case having the strategic conversation focus on moving the firm from being a supplier of IT talent to more of a value-added player in the software market – employees will propose ideas that are disconnected from what senior managers are looking to accomplish.  Shaping conversations without cutting off valuable ideation is more of an art than science, and requires considerable judgment and EQ.

But yet more EQ is required for effective strategic leaders.  While adding more knowledge to the strategy process is a very powerful and good thing to do, it still doesn’t solve the bounded rationality problem.  At the end of the day, you still don’t know whether the strategy you’ve chosen is going to the best one either before or after you implement it.

So, even when the conversation is well managed, at some point decisions will need to be made.  And this is where things get interesting.  Because if there is no provable “right strategy” to choose from, and multiple strategic directions are plausible to address the strategic situation, then how does a leader choose?  The answer is, ultimately strategies are chosen according to the leader’s values.  This isn’t something that you’ll probably get from an MBA course on strategy, but it’s unavoidable.  Bill Gates and the late Steve Jobs were both great strategists, but their strategic visions – their values – were quite different.  They helped to build two very different, but successful, companies.

Because for any one strategic situation multiple candidate strategies are plausible, leaders need to have strong persuasive powers to convince employees to follow.  Persuasion, especially when decisions are being based on the leaders’ values, is fundamental for creating alignment around a strategy.  And of course, powerful persuaders require considerable emotional intelligence.

Good strategy requires high IQ, but as we’ve seen, EQ is equally important.  We’ve only touched on the subject here.  One topic of particular interest is persuasion, a foundational skillset for the successful strategist.  We’ll make persuasion a topic for a future blog.

In the meantime, happy strategizing!

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