A Leadership Process for Creating and Implementing ... Leadership Process for Creating and Implementing Breakthrough ... ates variations through ... process for creating and implementing breakthrough strategies.

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Strategic LearningA Leadership Process for Creat ing and Implement ing Breakthrough St ra teg iesWil l iam G. Pietersen Professor of the Practice of Management140-8108_strategiclearning 9/13/04 3:18 PM Page 1Wil l iam G. Pieter sen | 32 | Strateg ic LearningL E A R N I N G F R O M N AT U R EWhat are the principles of successfuladaptation? Nature is our best teacher. In nature, the creation of favorablevariations is the key to successfuladaptation. A wonderful example is aplant, the common red clover, whichhas developed a flower with a uniquefeaturea long, thin funnel leading to the nectar at its base. Only bees,which have very long tongues, canreach the sweet nectar. Other insectsare shut out. The beauty of this strategy is that beescan fly farther than other insects. Ineffect, the red clover has formed an exclusive alliance with bees thatensures that its pollen is distributedmore widely than that of other plants.This gives it a crucial competitiveadvantage that promotes its long-termsurvival. This strategy is not without risk, ofcourse. What if another plant producesa sweeter-tasting nectar and the beesswitch brands? Or what if the beesthemselves are outmaneuvered andbecome extinct? The principle ofrisk/reward trade-off is hard at workhere! Nonetheless, at least for the timebeing, the alliance strategy has cap-tured a significant advantage that noother plant has been able to challenge.How does the natural world producesuch brilliant strategies? Nature gener-ates variations through a massive andceaseless set of experimentsmuta-tions that test a wide range of survivalstrategies. Most of these variations arefailures. But a few succeed, enablingindividual organisms to live longer,reproduce in greater numbers and out-compete other species. These are thefavorable variations that will come todominate future generations. The key is that nature never sits still.What is stunning is that, in nature, thedevelopment of favorable variations is a completely random, unconsciousprocess. The variations that arise aregenerated without apparent design,and the ones that will survive are notpredictable. As a result, evolution is a low-odds game: 99 percent of thespecies that ever existed are nowextinct. What lessons does nature hold fororganizations? As in nature, the rulesof survival in the marketplace areessentially Darwinian. Never sit still.Continuously generate favorable varia-tionsthose that create competitiveadvantageor run the risk of extinction.It is not thestrongest of thespecies that survive, nor themost intelligent,but the most responsive tochange.Charles DarwinT H E L E A D E R S H I P C H A L L E N G EWhat is the central challenge facingbusiness leaders today? The answer most management expertswill give you is the need for change.This has been repeated so many times,in so many different ways, that it hasbecome accepted as a truism. But oncloser inspection, this answer is onlyhalf true. And a half-truth, like a littleknowledge, can be a dangerous thing.The problem with the need for changeas an answer is that it strongly sug-gests that change should be a one-time eventthat a company needsonly to go from point A to point B in order to succeed. This A-to-Bapproach is at the core of traditionalstrategy, but in todays fast-changingworld, that approach is badly outdat-ed. One-time change just isnt goodenough. It simply gets you stuck in a new place. Meanwhile, the marketmoves on and leaves you behind.Todays competitive environment pres-ents unique challenges for organiza-tions: high levels of uncertainty andcomplexity, disruptive technologies,and a premium on speed, choice, andinnovation. These new challengesdemand a new type of leadership.Rather than A-to-B change, the centralchallenge facing business leaderstoday is to create and lead an adap-tive enterprise. This means creating anorganization with the built-in ability to sense and rapidly adapt to changesin the environmenton a continuousbasis.As a practicing CEO for 20 years andnow as a professor of management, I recognize that one of the biggesthurdles facing executives is theirinability to mobilize their companiesbehind new ideas. Change is disrup-tive to organizations and is notoriouslydifficult to lead. And ongoing, continu-ous change is even harder to achievethan one-time change. Yet building an adaptive enterprise is the only pathto long-term survival. This paper will lay out a practicalleadership process for creating anadaptive enterprise by mobilizing adynamic cycle of four steps: learn,focus, align, and execute. These stepsbuild on one another and are repeatedto create a dynamic cycle of renewalthat I call Strategic Learning. It is aprocess that offers a new way to leadcompanies in a world of unpredictablechange. Its no goodbeing on theright track.If you just sitthere youll be run over.Will Rogers140-8108_strategiclearning 9/13/04 3:18 PM Page 2Wil l iam G. Pieter sen | 54 | Strateg ic Learningmay be its only sustainable competi-tive advantage. He thus capturedthe central insight of the learningorganization movement.It is an important insight but incom-plete. De Geuss comment positionslearning as an end in itself, rather thanas a means to an end. It doesnt tell uswhere to concentrate our scarce learn-ing resources to achieve successfuladaptation. Arguably this is the mostcritical choice of all. As the Institutefor the Futures Paul Saffo has pointedout, Our predicament is the growinggap between the volume of informa-tion and our ability to make sense ofit. If we try to learn everything, wewill learn nothing.Thus, we need to build on de Geussinsight by adding the dimension ofstrategic focus. Learning gives us halfof the adaptation equation. To com-plete the equation, we must explicitlylink a firms learning to the creationand implementation of winningstrategies. Strategic Planning As a focus of business leadership,strategic planning is enjoying some-thing of a resurgence. During the1990s, when downsizing, consolida-tion, and cost-cutting failed to pro-duce sustained success, companiesreturned to strategy to find ways ofdriving growth. The trouble is that most companiesare relying on the conventional A-to-B strategic planning process.That model simply doesnt cut it intodays turbulent environment. In many companies, there is wide-spread frustration over the fact thattheir strategic plans are not doingtheir main jobcreating competitivebreakthroughs. People groan whenthey hear that the strategic planningseason is at hand. Frankly, they havegood reason. Strategic planning inmost cases is 10 percent strategy and 90 percent planningnumbercrunching, forecasting, and budget-ing. All this does is generate thickbinders full of data that end up collecting dust on the shelf. The sadtruth is that strategy all too oftenfails to engender the kind of ongoingrenewal that is the hallmark of anadaptive organization. Why is this so? Remember that successful strategy is essentially a response to theDarwinian logic we explored earlier.Survival, in the final analysis,But here is the twist. People have one crucial advantage over otherorganisms: the power to think andlearn. Natures low odds are due totwo gigantic learning disabilities.When nature fails, it doesnt knowwhy; when it succeeds, it doesntknow why. Organizations possess the capacity toovercome these learning disabilities. It is our power to harness learningthat increases our chances of survival,and the quality of that learning deter-mines our odds of success. Therefore,in the world of organizations, effectivelearning is at the heart of successfuladaptation. What is the track record for organiza-tions in responding to this challenge?The evidence is not encouraging.Longevity in corporations is the exception, not the rule. Only one third of the Fortune 500 firms of 1970still survive today. And the casualtyrate appears to be getting worse.According to Dun and Bradstreet, of the 9 million companies currentlyregistered in the U.S., only 7 percentare over fifty years old.If organizations want to improve theirability to adapt and survive, they willhave to change their ways.C R E AT I N G T H E A D A P T I V E E N T E R P R I S E : FA I L E D R E S P O N S E SThree approaches in particular haveheld out the promise of improvingan organizations ability to adapt: thenotion of the learning organization,the resurgence of strategic planningand complexity theory. None on itsown has worked.The Learning Organization The recognition that learning is centralto successful adaptation has given riseto a body of thinking on what hascome to be called the learning organi-zation, i.e., an organization with anenhanced ability to generate andapply learning. Learning theorists haveprovided valuable insights into howindividuals and groups learn and howto convert this knowledge into organi-zational learninga key ingredient ofan adaptive enterprise.Some years back, Arie de Geus, for-merly of Shell Oil and author of TheLiving Company (Harvard BusinessSchool Press, 1997), made an observa-tion which has since been repeatedmany times in the business literature:In the future, an organizations abilityto learn faster than its competitorsIt is not learningfor its own sake,but learningstrategically that is the sourceof successfuladaptaion.In the world oforganizations,effective learningis at the heart of successful adaptation.140-8108_strategiclearning 9/13/04 3:18 PM Page 4Wil l iam G. Pieter sen | 76 | Strateg ic Learningmajor role to play in the creation ofadaptive organizations.However, some complexity theoristshave taken the argument too far.Human organizations are not flocksof birds, schools of fish, or swarmsof bees. People have free will. Theycan and do make choices that areoften at odds with the goals of theorganization. They can resist change,sabotage strategy, and even go onstrike. In other words, they dontalways fly south in an orderly man-ner, as some complexity theoristslike to think.The reality is that we need the rightcombination of chaos and order forcreativity to flourish. It is a fallacy tobelieve that winning strategies cansimply emerge without a deliberateprocess for generating insight, mak-ing choices and creating focus. Theneed for leadership hasnt goneaway. But our concept of leadershipmust change from the pursuit of static goals to the challenge of con-tinuously modifying a firms strategicfocus in response to changes in the environment. Survival in a rapidlychanging world is hard because ittakes a jugglers skill to balance thedemands for focus and change.WHAT IS THE R IGHT ANSWER?This brings us back to the issueraised at the beginning: How canbusiness leaders create and leadadaptive enterprises? This challengecontains two separate questionsthe what and the how: 1. What are those few things organi-zations must be able to do outstandingly well to generateongoing renewal?2. How can organizations accomplishthese things in practice? Lets deal with the what questionfirst. After all, we must know whatto do before we can tackle the howissue of implementation. What arewe going to focus our scarce resourceson? The biggest decisions we makein business involve deciding whatsimportant. The detailed answers willvary from company to company andfrom industry to industry, but thereare certain commonalities that allbusinesses share. Here are the fivekiller competencies that I believeevery organization must master tobecome an adaptive enterprise:The Five Killer Competencies1. Insight: The ability to make senseof the changing environment depends on our best use of limitedresources. No matter what businesswe manageIBM or the local pizze-riawe all have finite resources; ifwe squander them, we are out of thegame. Thus, the main job of strategyis to make the most intelligent choicesabout how to use our limited resources.And as the environment becomesmore discontinuous, intelligentchoice-making depends increasinglyon an organizations ability to makesense of the changing landscapethrough learning and discovery, to translate superior insights intostrategic actionand to do so continuously. As Henry Mintzberg, author of TheRise and Fall of Strategic Planning(Free Press, 1994), has pointed out,strategy is one thing, planninganother. Strategy should come first,planning afterward. However, formany companies, strategy is a numbers game rather than an ideasgamea planning ritual rather thana process of discovery. Companiesmay have been able to get awaywith planning alone in the slower-moving environments of yesterday.Such an approach could prove fataltoday. But by far the most serious indict-ment of conventional strategy is thatit is static. Focused on creating one-time, A-to-B change, it provides no means for generating ongoingadaptation. Complexity Theory The failure of traditional strategy has sparked a growing interest in so-called complexity theory as a newway to think about adaptation andrenewal. Borrowing concepts frombiology and other natural sciences,the complexity theorists argue that in a nonlinear world, you cannotaccurately predict the future, nor cancompanies plan ahead. Therefore,conditions should be created thatwill allow strategy to emerge natu-rally and permit organizations toself-organize in response to signalsfrom the external environment, asflocks of birds, for example, migratesuccessfully together, instinctivelyresponding to environmental cues.There are a number of valuableinsights in complexity theory: theneed to understand organizationsholistically, the importance of allow-ing enough freedom for creativity toflourish, and the crucial role of orga-nizational learning. All these have aWinning once is not enough.To survive in the long term,we have to go on winning.The key chal-lenge is to bothcreate strategicfocus and con-tinuously adaptto the changingenvironment.140-8108_strategiclearning 9/13/04 3:18 PM Page 6Wil l iam G. Pieter sen | 98 | Strateg ic LearningWHAT IS STRATEGIC LEARNING?Strategic Learning is a learning-basedprocess for creating and executingbreakthrough strategies. Unlike traditional strategy, which aims at producing one-time change, StrategicLearning drives continuous adaptation.As shown in Figure 1, the process hasfour linked action steps-learn, focus,align, and executewhich build onone another and are repeated (as the fifth step) in a continuous cycle.Together they embody the five compe-tencies mentioned earlier. The firsttwo steps form the basis of a firmsstrategy creation. The third and fourthsteps are the foundations of strategyimplementation. Thus, strategy creationand implementation are integrated in a mutually reinforcing process. The key is to think cyclenotstraight line. Simply following theStrategic Learning process once isnot enough. The leadership chal-lenge is to repeat it over and over,so that an organization continuouslylearns from its own actions and fromscanning the environment, and thenmodifies its strategies accordingly.2. Focus: The ability to create anintense focus on the right things3. Alignment: The ability to align andmobilize the entire organizationbehind this strategic focus4. Execution: The ability to imple-ment fast5. Renewal: The ability to do thesethings over and over without stoppingNote that the fifth competency is different from the first four. The firstfour competencies are aimed at pro-ducing specific outputs. The fifth isthe ultimate competencythe abilityto go on repeating the first four. Thisability creates a cycle of renewal thatseparates truly dynamic organizationsfrom those that are doomed to becometomorrows dinosaurs. ACHIEVING ADAPTIVENESSTHROUGH STRATEGIC LEARNINGHaving decided on the competenciescrucial to an organizations long-termsurvival, the big challenge is tomove beyond the rhetoric and actually implement themthe howquestion. An idea, no matter howprofound, has absolutely no valueuntil it is put into practice. Strategic Learning is presented hereas a practical leadership process for mobilizing the five competenciesto create an adaptive enterprise. I developed it initially through trialand error as a practitioner; it hassince been refined with input andencouragement from my colleaguesat Columbia Business School. Themethodology is now widely used inexecutive education programs at theSchool. The principles of StrategicLearning have been taught andapplied in such leading companiesas Aviva, Bausch & Lomb, Boeing,Chubb Corp., Deloitte, Ericsson,ExxonMobil, Henry Schein, Inc.,Process Energy, SAP and Sony. Andthe Girl Scouts Organization is usingthis process for its strategy creation.Strategic Learning is not a magic bullet. There is no such thing. Butthe method has been battle-testedand has made a measurable differ-ence in a number of organizations.In working with executive teams, I have found that those who followthe principles of Strategic Learningwith passion and determination haveachieved a real difference both fortheir organizations and personally. T h e S t r a t e g i c L e a r n i n g C y c l eLearnGenerate insight into changing environment & learn from own actions.AlignAlign organization behind strategic focus.ExecuteImplement the strategy & experiment with new ideas.FocusMake strategic choices.Strategy CreationStrategy ImplementationOrganizationsthat can masterthe five killercompetenciesbetter than theircompetitors willgreatly improvetheir odds of long-term survival.Figure 1140-8108_strategiclearning 9/13/04 3:18 PM Page 8Wil l iam G. Pieter sen | 1110 | Strateg ic LearningThe process involves a particularsequence of activities, each designedto produce specific outputs that feedinto the next stage of the cycle. Butnote: Although these activities are portrayed as sequential, life is messy.Thus, it is often necessary to repeat a stage or loop back in an iterativeprocess. That is part of the learning,and it is all to the good, as long asthe whole cycle is completed. Hereshow it works. S T E P O N E : T H E S I T U AT I O NA N A LY S I S ( L E A R N )The essential starting point in theStrategic Learning process is theSituation Analysisa systematic exercise in diagnostic learning. The Situation Analysis is the engineroom of strategy creation. Its aim isvery specific: to develop superiorinsights as the basis for the firmsstrategic choices. All breakthroughstrategies are based on a uniqueinsight. The task of the Situation Analysis isto generate superior insights into thefollowing key areas: Customers Competitors The firms own realities Industry dynamics The broader environmentThe aim is to scan and interpret thefirms external environment and itsinternal realities in a combination ofanalysis and creative brainstorming.The emphasis is on challengingexisting assumptions and producingout-of-the-box thinking. It is impor-tant to probe and explore, alwayssearching for trends, root causes,and ultimate consequencesnot juststacks of data. Note that the process does not beginwith articulating a vision, as manystrategy experts recommend. Trying toinvent a vision in a vacuum is likeshooting in the dark. Doing the SituationAnalysis first ensures that the vision is based not on whim but on insight.Where a clear and compelling visionalready exists, a thorough SituationAnalysis will validate and reinforce it.The key to conducting a goodSituation Analysis is to ask andanswer the right questionspenetrat-ing questions that will provokeinsights. Each company must find the right questions for its particularcircumstances. The following list ofsample questions is offered as a guide:The more often an organizationrepeats this cycle, the better it will become at doing it, thusenhancing its adaptive capacity. The result is a process of ongoingrenewal that characterizes the trulyadaptive organization.IMPLEMENTING STRATEGICLEARNING: A PRACTICAL GUIDEWhen you want to achieve an impor-tant result, the key to success is to create a process that will take youthere. For Strategic Learning to workin organizations, it needs to be anintegral part of the way the business is run, not a sideline or staff-drivenactivity. Strategic innovation is tooimportant to be left to random actionsand ad hoc initiatives. Just as compa-nies employ systematic research anddevelopment to spur technical inno-vation, so too we need to harness adeliberate, systematic process to drive strategic innovation. Figure 2illustrates how the four-step cycle is converted into a practical leadershipprocess for creating and implementingbreakthrough strategies. S t r a t e g i c L e a r n i n g : T h e L e a d e r s h i p P r o c e s sConduct Situation Analysis Implement & Experiment Define Vision & Strategic ChoicesMeasures & RewardsCulture Structure & ProcessPeopleLearnAlignExecute FocusIssues & AlternativesGapsAction PlanLearning LoopA wise mans questions contain half the answer.Gabirol (ca. 1070)Figure 2140-8108_strategiclearning 9/13/04 3:18 PM Page 10Wil l iam G. Pieter sen | 1312 | Strateg ic LearningThe Broader EnvironmentWhat is happening around us thatwill impact our business in regard tothe following factors? Economic trends Social habits and attitudes Technology Demographics Government regulation For maximum benefit, the SituationAnalysis should engage the intellectualand creative resources of the entirefirm, not only those at the top. Inputsshould be sought from those who areclosest to the customer. Therefore,extensive use should be made of cross-functional teams in a combination ofmarket research, analysis, criticalthinking, and creative brainstorming.The key deliverable from theSituation Analysis is a set of insights,not a survey of data. These insightsshould be crystallized into concisediagnostic statements that can bereadily understood by all. Simplicityand clarity are essential virtues.When executive teams conduct aSituation Analysis, they should pretend theyre journalists in searchof a scoop. They should continue to delve and not stop until they feel they have developed superiorinsightstruths that they haveunderstood better or earlier than the competition. Seeing it first andunderstanding it better is the nameof the gameits where the competi-tion begins. When the key insights have beendefined, a firm can begin to considerthe issues and alternatives that haveemerged, and to explore the prosand cons of various alternatives. Thisis the analytical precursor to makingthe final strategic choices. For exam-ple, a key insight may be that a sizable share of your business willmigrate to the Internet over time. Ifso, one issue to explore is the alter-native ways of converting your existingmodel to a dual-channel (on-line andoff-line) approach without destroyingyour current profit stream.Customers What are the underlying trends inour customers expectations? How is today different from yesterday, and how will tomorrow be differ-ent from today? What is the hierarchy of customerneeds? These should include customers hidden needsthosethings we must understand beforethey do. How well do we currently servethose needs? (S=Strong, M=Moderate,P=Poor)Competitors In what distinctive ways are ourtraditional competitors serving themarket? How does their effective-ness compare with ours in theeyes of the customer? Who are our nontraditional com-petitors and what unique benefitsare they offering? Who is the mostdangerous, and why? What will be the next big break-through in serving customer needs?Who is most likely to launch itus or a competitor, and why?The Firms Own Realities What are the five-year trends onour critical performance measures,and what conclusions can wedraw from them? Where are we making money andwhere not? (This question requiresdisaggregation of profit and cashflow by customer, product group,and geography.) Are we address-ing our losing propositions? What are our key strengths thatwe can leverage for competitiveadvantage? What are our weak-nesses that represent barriers tobetter performance? Industry Dynamics Which trends in our industry andthe new economy are the mostimportant in shaping our destiny?How will they change the rules ofsuccess? What are we currently doing toexploit these developments so thatthey produce greater value for ourcustomers? What barriers must we overcometo take the lead in profitablyexploiting these trends? What arethe top priorities? Increasingly,the battle for the best insights is becoming themost decisive battle in the competitive wars.140-8108_strategiclearning 9/13/04 3:18 PM Page 12Wil l iam G. Pieter sen | 1514 | Strateg ic LearningS T E P T WO : V I S I O N A N DS T R AT E G I C C H O I C E S ( F O C U S )The Vision and Strategic Choices are the key deliverables of strategycreation. They are based on theinsights generated in the SituationAnalysis and represent the strategicfocus of the firm. The Vision The sightless author and educatorHelen Keller was once askedwhether she could think of a fateworse than being blind. Yes, shesaid, being able to see, but havingno vision. There is no doubt that a compellingvision has an energizing effect on anorganization. However, it is equallytrue that there is no bigger waste oftime than the creation of bland, one-size-fits-all vision statements such asWe shall strive for excellence in allthat we do. A vision is a concise word picture ofwhat an organization aspires to be in the future that provides a clearsense of direction that everyone canunderstand. Coherence is key; thevision should be an extension of thefirms strategic choices, not a thingapart. A good vision is simple, motivating,and realistic. Martin Luther King Jr.sI have a dream speech is a greatexample of a powerful vision state-ment that inspired a movement and,ultimately, a nation. Here are someother examples: President John F. KennedyTo put a man on the moon and returnhim safely to earth in ten yearsOgilvy & MatherTo be the agency most valued bythose who most value brandsWalt DisneyWe use our imagination to bringhappiness to millionsMarriott HotelsEvery guest leaves satisfiedA vision should involve stretch. Thedesired response should be Yes,thats where we want to gobut wecant get there by doing what weredoing today. Great visions motivatetransformational behavior, not incre-mentalism. They inspire people to invent their way to the desiredfuture. The Strategic Choices Strategy is about making choices. No lasting success has ever beenachieved without an intense focuson the right things. But makingchoices takes courage. The worstdecision is to duck the issue, tryingto be all things to all people. The Strategic Learning process isdesigned to ensure that your choicesare based on insight rather thanguesswork and that you make themost intelligent choices possible. The Strategic Choices contain threeelements (Figure 3). The first,Customer Focus, defines which customers the firm will serve (andwhich it will not), and what productsor services it will offer them. Thesecond is the Winning Proposition.This answers the question, Whatwill we do differently or better thanour competitors to achieve greatervalue for our customers and superiorprofits for our firm? The third element is the Five KeyPriorities, a list of the top prioritiesthe firm will pursue to realize itswinning proposition. Avoid a laundrylist. If there are more than five prior-ities, focus becomes blurred. Theprocess of prioritizing should thencascade throughout the organization,so that each division, department,and individual develops an alignedT h e S t r a t e g i c C h o i c e sCustomer FocusWhich customers will we serve?What is their hierarchy of needs?What will we offer them?The Winning PropositionWhat will we do differently or better than our competitors?Five Key PrioritiesWhat are those few things thatwill make the biggest difference?GreaterCustomerValueSuperiorProfitsThe first taskof the leaderis to be thetrumpet thatsounds theclear sound.Peter DruckerOne litmustest of a goodstrategy isthat the firmhas decidednot only whatit will do, butalso what itwill not do.Figure 3140-8108_strategiclearning 9/13/04 3:18 PM Page 14Wil l iam G. Pieter sen | 1716 | Strateg ic Learningset of strategic priorities, never morethan five in number.The Strategic Choices should bedescribed in utterly simple, concisestatements. This takes time. Simplicityis not a shortcutit is hard work. Butthe time spent is a sound investment.People simply do not respond tolong, complex statements. A good example is SouthwestAirlines. Their customer focus is single-minded: to serve budget-conscious travelers. Their winningproposition is to operate at the lowest industry costs and providefun-filled air travel that competeswith the cost of car travel. Their keypriorities are equally unambiguous: Have fun. Focus on the needs of the customer. Ensure that everybody helps out. Maintain superior operational efficiency. Apply tight cost controls. Everyone at Southwest knows exactlywhat the strategy is, what the firm willand will not do, and where eachemployee fits in. It is no accident thatSouthwest has the best growth andprofit record in the airline industry.G E A R I N G U P F O R I M P L E M E N TAT I O NBefore moving to the alignment stepin the process, the strategic prioritiesneed to be translated into operationalgoals that clearly spell out what mustbe done for the firms strategy to beeffectively implemented. First, look at each of the strategic priorities andask what gaps must be closed forthem to be achieved. The resulting gap statements definethe appraisable difference betweenthe current reality and the desiredfuture state for each priority. Theyshould be articulated in concrete,measurable terms. For example: To improve customer satisfactionrates from 70 to 90 percent To raise sales from products intro-duced in the past three years from20 to 40 percent of the total To reduce R&D time to marketfrom seven years to four To increase the percentage of on-line sales from 2 to 30 percent Each gap should contain clear mile-stones, and for each gap a specificchampion should be selected andcharged with leading teams toachieve those targets. In setting theirgoals, companies should strive forworldwide best practices, not simplyto be the best in their local market.Today the competition for the bestideas is global. If there is a betteridea anywhere else in the world,sooner or later it will come into yourmarket and compete against you.You can run, but you cant hide!S T E P T H R E E : A L I G N T H EO R G A N I Z AT I O N ( A L I G N )Now that the Strategic Choices and the gaps to be bridged havebeen clearly defined, a firm is ready to tackle the issue of strategyimplementation. In large, complex organizations, this can be a dauntingtask. For many executives, this is thehardest part of all.Fortunately, there are clear principlesfor success. If applied effectively,they can substantially improve acompanys results. But if they areignored, then failure is inevitable. The first essential is effective projectmanagement. The right disciplines,measurements, and accountabilitiesmust be applied to closing the gaps,and follow-through must be relentless.But successful implementation is morethan a matter of good, hard-nosedproject management. It also requiresthat all the key supporting elements ofthe business system be aligned behindthe chosen strategy. The existing align-ment has been put in place over timeto support yesterdays strategy. It isessential to realign the business system behind tomorrows strategy.Otherwise, that strategy will fail. There is a trap that many organiza-tions fall into when they move intothis implementation phase: Manage-ment of Things in Isolation (MTI).Companies fall into the MTI trapwhen they simply change one ele-ment of the business system andhope for success. The kinds of isolat-ed initiatives many companies launchinclude Six Sigma, management byobjectives, reengineering, and espe-cially changing the organizationalstructure. Company after companysets out to reorganize its way to suc-cess. When this doesnt work, theysimply do it again. Before long theybecome serial reorganizers! They then become frustrated, finding thatnothing happens except confusion. Such selective interventions hardlyever work. For implementation ofany strategy to be successful, allI am sorry to write you this long letter,but I didnthave time towrite you ashort one.Blaise PascalThe big question is,How do weget our organi-zation to dowhat we wantit to do?140-8108_strategiclearning 9/13/04 3:18 PM Page 16Wil l iam G. Pieter sen | 1918 | Strateg ic Learningthe key elements of the business system must reinforce each other insupport of the strategy. No singleelement on its own can do the job. The task is to understand the keysupporting elements of a firms busi-ness system that must be aligned.Various frameworks for doing thishave been suggested by, among oth-ers, Galbraith, Nadler, and Tushman.The model proposed here (Figure 4)comprises the following supportingelements, which must work in uni-son: Measures and Rewards, Structureand Process, People, and Culture. Think of an organization as anecosystem, like a rain forest or anoasis in the desert. An ecosystemfunctions successfully only when itsinterdependent elements support oneanother. When any single elementdoes not play its supporting role orwhen the elements work against eachother, the system fails. Consider the story of the giraffe andthe acacia tree. Giraffes love theleaves of the acacia tree. Theybrowse on them all day long. But agiraffe will never feed from the sameacacia for very long. After a briefperiod of eating, it will amble offand start feeding from a similar treenearby. It looks as if the giraffe isacting on a whim. But this is not so.The tree is actually giving the giraffeits marching orders. After a certainnumber of its leaves have beeneaten, the tree rapidly injects a bittersap into its leaves, thus repelling the giraffe and forcing it to feedelsewhere. This protects the treefrom extinction, while preserving thegiraffes food supply. The key elements of the businesssystem are similarly interdependent.Success comes not from isolatedactions, but from orchestrating theright interactions. For example,Southwest Airlines strategy is sup-ported by all the key elements of itsbusiness system working together.This is why their competitors find itso hard to copy them.It is necessary to examine each element in turn and make thechanges necessary to ensure thatthey are acting in concert to support the strategy. Measurements and RewardsA good place to start is withMeasurements and Rewards. It isamazing how often a firm will try to introduce a new set of practiceswhile continuing to measure andreward the old ones. When this happens, the new initiative is deadin the water. Every measurement conveys a hid-den message. Whenever a companymeasures something, it is doing twothings: It is gauging performance,and it is making a strong statement:This is important. Failure to meas-ure something sends the oppositemessage, i.e., This is not important.Thus, it is crucial that the measure-ment and reward system act in unisonwith the other elements in the businesssystem. Structure and Process A new strategy often requires impor-tant changes in the way a firm isorganized and how its decisions getmade. Therefore, it is necessary toask such questions as: To best support the new strategy,should the firm be organized byproduct line, customer grouping,function, geography, or someother principle? A l i g n i n g t h e O r g a n i z a t i o nStrategyStructure & ProcessOrganization Design,Decision Processes,& Information SystemsCultureWidely Shared Beliefs and BehaviorsMeasures & Rewards Measurement & Reward SystemsPeople Competencies & MotivationWhat gets measured getsdone.What gets rewardedgets done repeatedly.The key is to see the organi-zation as anecosystem ofinterdependentelements.Think of thegiraffe and theacacia tree.Figure 4140-8108_strategiclearning 9/13/04 3:18 PM Page 18The last rule, Set a shining exam-ple, lies at the heart of effectiveleadership. A leaders words anddeeds must be completely integrated.This is what we mean when we saythat leadership is about integrity.The first lesson officers learn at military school is that your troopswill always follow your example.The moment a leaders words anddeeds come apart, the leadershipeffort will die.Culture Culture is probably the most misun-derstood and mismanaged part ofthe business systemand arguablythe most important success factor ofall. As Lou Gerstner, CEO of IBM,has said about his turnaround strate-gy for the once-troubled computercompany, Fixing the culture is themost criticaland most difficultpart of a corporate transformation. The poor management of cultureusually stems from two misconcep-tions. The first is that culture isvague and mysterious. This is a fallacy. Culture expresses itselfthrough specific values and observable behaviors. The secondmisconception is that culture is somehow separate and distinct from the rest of the business, likethe separation of church and state in the American political system.This notion, too, is flawed. Business performance and culture are inextri-cably linked together. Think of culture as a means to anend. In a particular society, culture is a set of beliefs and behaviors thatpersist over time because they helpthat society solve its problems(whether social, economic, or politi-cal). Every society has an elaboratesystem of rewards and penaltiesdesigned to ensure that supportivebehaviors continue and that destruc-tive behaviors are extinguished. The same is true in any business. A companys values and behaviorsmust directly support its strategyand work in combination with all theother key elements in the businesssystemin order for that strategy to succeed. Especially important are the necessary measurements and rewards, without which thosesupporting behaviors will simply not happen.Wil l iam G. Pieter sen | 2120 | Strateg ic Learning Should we introduce some form ofmatrix system to ensure that theproper linking mechanisms are inplace? What should be the level of cen-tralization or decentralization foreach activity in the value chain?As your strategy changes, its likelythat your answers to these questionsneed to change too. People An organization is not a machine.Success will be achieved only if its people are focused, skilled, andmotivated.A firm that defines and communi-cates its strategic choices with clarityand simplicity will create the neces-sary focus. It then needs to buildthe competencies required to sup-port the new strategy. This ofteninvolves recruitment, training, andjob rotation. Sometimes, hard deci-sions must be made about the needfor severances. And if the compe-tency overhaul is radical, a firm may need to acquire or partner with an organization that has therequired skills. Motivation is a pivotal factor. Theevidence shows clearly that high-commitment organizations out-perform those where employeesexhibit lower levels of motivation.Yet human beings by nature resistchange. People do not easily leavetheir comfort zones to embrace theuncertainties brought by change. We need to address this psychologyof resistance with specific actionsdesigned to overcome the resistanceand convert it into active supportfor the new strategy. Simple exhor-tation will not be enough. We haveto address the underlying causes of resistance. This is, perhaps, themost difficult of all leadership chal-lenges. The leadership of change is a vastsubject of its own. However, thekeys to success can be summarizedthrough six simple rules: Principles of Change Leadership1. Create a simple, compelling state-ment of the case for change.2. Communicate constantly and hon-estly throughout the process.3. Maximize participation.4. If all else fails, remove those whoresist.5. Generate short-term wins.6. Set a shining example.When cultureresists strategy,culture wins.Be the change you want to create.Mohandas K. Gandhi140-8108_strategiclearning 9/13/04 3:18 PM Page 20Wil l iam G. Pieter sen | 2322 | Strateg ic LearningS T R AT E G I C L E A R N I N G A S APATH TO PERSONAL RENEWALJust as companies need a process forgenerating ongoing renewal, so doindividuals. Strategic Learning can beused not only as an organizationaltool to help create breakthroughbusiness strategies but also as a personal tool for the development of effective leadership skills.Strategy and leadership are oftenapproached as two separate subjects.But the truth is that they are twosides of the same coin, each indis-pensable and both intimately linked.Without strategy, there is no cleardirection, which makes effectiveleadership impossible; yet even themost far-sighted strategy is doomedto failure unless its implementationis guided through effective leader-ship. Thus, any lasting success is theproduct of great strategy and greatleadership working hand in hand. Furthermore, in todays new econo-my, effective leadership is more crucial than ever. Success in the old world was based mainly on theleveraging of physical assets. In thenew world, it is based mainly on theleveraging of such human assets asknowledge, creativity and insight.The familiar saying, Our people are our greatest assets, has nowbecome an unforgiving reality.Tomorrows losers will be the com-panies that fail to fully realize thepotential of their employees. Thewinners will be those that maximizenot only their ROA (return on assets)but also their ROP (return on people).Leadership and Emotional IntelligenceWhat then is leadership? How does itdiffer from the intelligence and tech-nical skill needed by any competentexecutive?In the business context, intelligenceand technical skills are thresholdcapabilitiesthe basic requirementsfor entry into the executive suite.True leadership involves an addition-al set of qualities, including self-awareness, empathy, motivation,sociability, and political adroitness.In combination, these qualities aresometimes referred to as emotionalintelligence, or EQ. Research increas-ingly suggests that the most effectiveleaders are those with a high degreeof EQ. In his book Working with EmotionalIntelligence (Bantam, 1998), Daniel S T E P F O U R : I M P L E M E N T A N DE X P E R I M E N T ( E X E C U T E )Effective alignment, as described inStep Three, ensures that the firmskey organizational resources and the energies of its people are con-centrated as a powerful driving forcebehind the new strategy. The firm is now in a position to execute thestrategy successfully and rapidly. Step Four is the actual implementa-tion phase of Strategic Learning. It should include a deliberate set ofexperiments to fuel organizationallearning. We can never know forsure what is going to work. Likenature, we must maximize ourchances of finding favorable varia-tions through continuous experimen-tation.Step Four then feeds back into theSituation Analysis. The firm updatesits insights, learning by examining itsown actions and by rescanning theenvironment, and then modifies itsstrategies accordingly. The processnever stops.D O C U M E N T I N G T H E S T R AT E G YA strategy based on Strategic Learningshould be captured in a concise document consisting of six sections:The Strategic Learning Document 1. A summary of the key insightsgenerated by the SituationAnalysis2. The Vision Statement 3. The Strategic Choices and a list ofthe Key Priorities4. The gaps that must be closed inorder to achieve the priorities5. The plan for aligning the organiza-tion behind the strategy6. A list of experiments to stimulate further learningThe emphasis should be on brevityand clarity. Ten pages is the limit.Long, rambling documents simplycloud the issues and often gounread. The operating plan is a separate document that will containthe financial projections, capitalbudgets, and other important details. 140-8108_strategiclearning 9/13/04 3:18 PM Page 22Wil l iam G. Pieter sen | 2524 | Strateg ic Learning1. LearnGenerate insights aboutyourself and the leadership chal-lenges you face. The essential first step is to conducta Personal Situation Analysis, withthe aim of generating the keyinsights needed to guide your self-development program. One goodstarting point is the Lifeline Exercise,which is often used in executiveeducation programs at ColumbiaBusiness School. This involves draw-ing a line across a sheet of paper,representing the timeline of your lifeup to the present. You then mark onthis line key turning points in yourlifeachievements, setbacks, mile-stones, instances of self-discovery.Relating the importance of thesedefining moments to a trusted col-league can be a powerful tool foruncovering some of the unrecog-nized lessons of your life.Another powerful learning experi-ence is the use of a well-constructed360-degree feedback instrument,which gathers feedback on your per-sonal and business skills from peers,subordinates, and superiors on ananonymous basis. This is a sensitiveexercise, one that demands maturity,Goleman lists five key elements ofEQ, grouped under two broad head-ings:Personal Competence (How WeManage Ourselves) Self-awarenessKnowing onesinternal states, preferences,resources, and intuitions Self-regulationManaging onesinternal states, impulses, andresources MotivationEmotional tendenciesthat guide or facilitate reachinggoalsSocial Competence (How We HandleRelationships) EmpathyAwareness of othersfeelings, needs, and concerns Social skillsAdeptness at induc-ing desirable responses in othersIt is easy to think of effective leadersfrom the worlds of business and pol-itics who have a high degree of EQ,as well as others who lack this spe-cial set of sensitivities and thereforeare vulnerable to professional derail-mentoften despite high IQs andbrilliant technical skills. To a largeextent, the qualities that make up EQare what we have in mind when wedescribe someone as a real leader.T H E L E A D E R S H I PD E V E L O P M E N T C YC L EThe good news is that the leadershipskills comprised in EQ can beenhanced through learning, providedone is willing to work at the taskwith systematic rigor. The StrategicLearning process can offer a power-ful framework for such personal self-development. Learning, in fact, is at the heart ofboth strategy creation and leadershipdevelopment. In the case of strategycreation, learning is an outside-inprocess (starting with a study of customers and competition), while inthe case of leadership development,it is an inside-out process (startingwith an understanding of self). Yetthe steps in both processes can bethe same. Mike Fenlon, my colleagueat Columbia Business School, and I have developed a LeadershipDevelopment Cycle whose fourstepslearn, focus, align, and exe-cuteclosely mirror those of theStrategic Learning Cycle (Figure 5).T h e L e a d e r s h i p D e v e l o p m e n t C y c l eLearnGenerate insights about yourself and the leadership challenges of your environment.AlignAlign inner self with leadership philosophy by creating your Leadership Credo.ExecuteImplement action plans andapply Credo. Obtain feedback.FocusTranslate insights into priorities and action plans forleadership development.Figure 5140-8108_strategiclearning 9/13/04 3:18 PM Page 24Wil l iam G. Pieter sen | 2726 | Strateg ic Learning4. ExecuteImplement action plansand obtain feedback. In the fourth step of the Cycle, youimplement your personal improve-ment plan. Seek opportunities to articulate and act upon yourLeadership Credo, continuallyappraise your own performance, and seek feedback from othersyour colleagues, your coach, andothers whose opinions and observa-tions you trust. Use the results as the basis for further learning andimprovement.The key is to repeat the cycle againand again, never ceasing to strive for self-improvement. If you remainopen to new ideas and self-examina-tion, you can continuously enhanceyour EQ and improve your leader-ship effectiveness.S O M E F I N A L T H O U G H T SStrategic Learning rests on theproposition that the ability to learnand adapt is the only sustainablecompetitive advantage in todays turbulent world. This is equally truefor organizations and individuals. But merely saying this is not enough.Executives need practical methodsfor turning ideas into action, whichdefine not only the what but alsoprovide the how. Hence, the four-step cycle of Strategic Learning:learn, focus, align, and execute.But Strategic Learning is about leadership, not mechanical rituals.Strategic breakthroughs have beenachieved by companies when theyapply the process with imagination,in a discovery-driven, dynamic way. It involves a constant drive for insights, followed by the rapidtranslation of insights into action.Finally, I would like to bring thehuman aspect of all this to centerstage. It is often stressed that peopleare the most important asset in any business. There used to be animplicit understanding betweenemployer and employee that loyaltyand hard work would earn securityof employment. The era of downsiz-ing and outsourcing has shatteredthat social contract. By mobilizingStrategic Learning for both organiza-tional and personal renewal, a firmcan develop the intellectual capitalof its people, thus helping to provide them with the vital tools for success in todays competitiveenvironment.honesty, and openness on all sides.Expert advice and coaching can helpyou gain the greatest benefits fromthis process. In fact, a growing num-ber of businesspeople are employingexecutive coaches on a continuingbasis to help them learn and grow asleaders. If you and your organizationare able to devote the necessary timeand resources, this is an optionworth considering. 2. FocusTranslate insights into priorities and action plans. The second step is to develop yourown priorities for personal growth.What are those few things that youwill concentrate on, day in and dayout, in order to become a better leader?Begin by summarizing the keyinsights about yourself and yourleadership challenges as generated in your personal Situation Analysis.Discuss these with your coach ortrusted colleague. What strengths canyou build on? What gaps need to befilled? Which leadership qualities arelikely to be most severely tested inthe coming months?On the basis of your answers tothese questions, establish a list of nomore than five personal developmentpriorities together with specificactions and a method for assessingyour progress. 3. AlignAlign your inner self withyour leadership philosophy. The task here is to align your senseof self and core beliefs with howyou intend to lead your organization.The integrity of this alignment givesthe leader authenticity and moralauthority.One powerful tool in this process isthe personal Leadership Credo, asuccinct statement of the beliefs and principles that will drive yoursuccess as a leader. It should providecompelling responses to the follow-ing questions: What do I stand for as a leader? What is our organizations vision?How will we win? What do we stand for as an organ-ization?The Leadership Credo can be thecrucial point at which strategy andleadership intersect. If the Credo isclear and simple, and if you harnessthe power of images and stories tocommunicate its message to thosewith whom you work, it can play animportant role in keeping you andyour organization on track. 140-8108_strategiclearning 9/13/04 3:18 PM Page 26AcknowledgmentsStrategic Learning has evolved from the two great learning laboratoriesthat have shaped my ideas. The first was my twenty years as a practicingCEO in various countries and industry settings. The second has been thelast five years at Columbia Business School as a teacher, consultant, andresearcher, where Ive received wonderful input and encouragementfrom my colleagues. I would particularly like to thank Bill Klepper and Mike Fenlon for theirmany and generous contributions to my thinking, Victoria Marsick forher guidance on learning theory, and Jeffrey Kuhn for his energetic sup-port on numerous aspects of this project.You can learn more about the benefits of Strategic Learning in Willie Pietersensbook, Reinventing Strategy (John Wiley & Sons, 2002).All inquiries about Strategic Learning should be directed to Willie Pietersen by e-mail at williampietersen@aol.com.Copyright 2004 by William G. PietersenAll rights reserved. No part of this document may be reproduced or transmitted inany form or by any means, electronic or mechanical, including photocopying,recording, or by any information storage and retrieval system, without permission in writing from the author.140-8108_strategiclearning 9/13/04 3:18 PM Page 28

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