By: Rich Horwath

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Who does the strategic thinking in your organisation? The norm is to assume that senior executives are strategic and lower-level employees are not. But if they are, where do they gain the skills? The fact is 90% of executives at the director and VP levels have had no training to become competent strategists.

In his book Deep Dive, Rich Horwath reveals the truth about strategic thinking and provides us with a three step guide to increasing our skill and becoming one of the top 10%!

Horwath starts with this definition: Strategic thinking is the generation and application of business insights on a continual basis to achieve competitive advantage.

“But we already participate in strategic planning”, I hear you say. OK, but how often? Probably only once a year, stuck in closed room with other executives I imagine. Horwath suggests that strategic thinking should be part of our daily activities — not a once a year burden. In that way we are continually looking for insights and exploiting opportunities.

Lesson 1: The Four Types of Managers

Throughout “Deep Dive” Horwath uses parallels with ocean diving. Using this analogy he describes four types of managers as they relate to divers:

Diver Type 1: Beach Bums: They sit on the shore and make no attempt to enter the water.

Manager Type 1: This type of manager doesn’t contribute insight into the business.

Diver Type 2: Snorkelers: They swim on the surface of the water, equipped with a diving mask and swim fins.

Manager Type 2: This type of manager offers tactical solutions to issues, but the solutions don’t have a major impact on the business.

Diver Type 3: Scuba Divers: They swim underwater wearing a diving mask, swim fins, a wetsuit, and a portable apparatus containing compressed air.

Manager Type 3: This type of manager can produce strategic insights for solutions but requires assistance to do so. Because they generate insights only when heavily equipped, the insights are infrequent and tend to occur only in a specially arranged meeting.

Diver Type 4: Free Divers: They dive underwater without the assistance of a portable breathing apparatus in an attempt to attain great depths.

Manager Type 4: These managers use a portfolio of questions, frameworks, and models to guide their thinking. They call on the appropriate tool and combine it with the right data to continually generate insights that transform the business. They are strategic thinkers.

Lesson 2: Strategy – What it is not (and what it is!)

Because 90% of executives have little training in strategy, there are a number of different interpretations of what ‘strategy’ actually is. To understand its true meaning, Horwath suggests we first consider what it is not.

• Misinterpretation 1: Strategy is not aspiration. It is not goals, nor objective nor vision. Being the best in the world is not a strategy! Too often, strategy is mistaken for aspiration. The “what” you’re trying to achieve, whether it be a goal, an objective, or a long-term vision, should never be confused with “how” you will achieve it, which is the strategy.
• Misinterpretation 2: Strategy is not the application of best practice. Trying to be better than instead of different from the competition is not a strategy. Best practices erode advantage because if more than one company is using a best practice, the necessary differentiation of strategy fades away.
• Misinterpretation 3: Strategy is not cautious. Being tentative and restrained and afraid to make trade-offs is not a strategy. If you aren’t willing to assume risk, make trade-offs, or upset somebody you don’t have a strategy.

So how does Horwath describe strategy? Business strategy is defined as “the intelligent allocation of limited resources through a unique system of activities to outperform the competition in serving customers.”

Here’s an interesting comparison made in the book. What do the American singer and songwriter Johnny Cash and the Mini Cooper automobile have in common? Johnny Cash didn’t have the best singing voice of his era, and the Mini Cooper isn’t the highest performance automobile on the market. They have both been remarkably successful, however, not because they were better but because they were different from their competition in ways their core customers valued.

Lesson 3: Competitive Considerations

Horwath suggests there are three competitive lenses that good leaders factor into their strategic thinking and planning:

1. Industrial
2. Organisational
3. Individual

The industrial lens is the one we are most familiar with. What influences our customers? Where are suppliers critical? Who are new potential entrants to our market? What could be alternative, substitute products?

Few of us at the organisational level. Here he suggests we consider internal competition for limited resources among different teams, departments, product lines or regions.

Horwath also suggests we try to look within in the minds of our customers. Changing a customer’s behaviour is often far more difficult than upending a competitor’s offering. Even in our own mind we have deep-rooted biases, experiences, and frames of reference. Our own experience can often constrain our strategic thinking bases on the belief that “we know best”.

Lesson 4: The First step to strategic thinking is Gaining Insight

Horwath suggests that the first step to achieving strategic thinking is to gather insight, or as he suggests, develop the acumen.

He defines a strategic insight as a new idea that combines two or more pieces of information to affect the overall success of the business, and lead to a competitive advantage. Strategists need to build their thinking around insights and how to discover them.

If a company can come up with true insights, then developing a strategy to exploit them is an achievable task. On the other hand, developing a strategy without insights is dangerous because it can result in unrealistic plans.

Horwath suggests that there are a few areas where we can seek out insight.

Strategic development needs to be carried out in context. While we can all participate in blue sky visualisation the context of the challenge must be at the forefront of our minds. Providing better services or products is great, but only if the customer recognises it as better than the competition. The goal is to find changes in the context of the business and use the resulting insights to exploit opportunities.

Horwath also suggests we use customers as an insight source. Get out of your corner office and go see the customer in their native habitat. Japanese philosophers would call this genchi genbutsu - go and see. Customers may not be able to express their desires, but their behaviours often provide the key insights that uncover them.

A third source of insight comes from questions. Questions stimulate thinking in new ways by posing mental barriers that make us stop and evaluate. Horwath’s approach is simply this: sleep on it! He suggests we first prepare our mind by gathering information relative to the issue. Give it some thought then let it incubate in our subconscious. Dream yourself to strategic success!

Lesson 5: The second step: Allocating wisely

Horwath’s second stage to strategic thinking is allocation. Resource allocation is at the core of strategy. Discussions of strategy effectively boil down to how to allocate limited resources to maximise business potential.

There are three types of resource within any business:

Tangible: Physical assets and financial resources.

Intangible: Culture, brand, and reputation.

Human: Knowledge, competencies, and skills.

Most businesses with lesser strategic thinking tend to focus on tangible resources: those that can be counted. But much greater value is held within the intangible. While people are your biggest asset, they are also your biggest liability if we don’t capture and use their tacit knowledge.

Horwath suggests that in order for resources to be a key component in your successful strategy, four criteria need to be met:

• Replication difficulty: The resource must be hard to copy.
• Value generation: The resource must increase value for the customer.
• Sustainability: The resource is plentiful enough to be used repeatedly.
• Lack of substitutes: The resource cannot be readily substituted by another resource that performs a similar function.

The key to effectively allocating resources lies in our ability and willingness to make trade-offs. Making trade-offs is one of the most difficult tasks for managers, and we rarely make them. Instead, we hedge our bets and try to be everything to everyone.

Horwath suggest we would be better off trying to be like eBay. No, not by creating an online market, but focussing in on their trade-off approach. Do six or eight things at 100% as opposed to twenty things at 60 or 70%.

Consider this: While advertising and entertainment are designed to fuel our hunger for more of everything, it is ironically doing less that is more important.

Lesson 6: The final step: Putting it into action.

Horwath’s third and final stage of strategic thinking is action. Research shows a need for greater organisational discipline when it comes to putting things into action. Often, we assume that once a sound strategy has been formulated, the rest will take care of itself.

But in nearly every case, poor execution can be attributed to one of the following factors:

Faulty Strategy: Garbage in… garbage out. Enough said.

Unclear resource requirements: A strategy that does not clearly define the tools and resources needed to execute will never get off the ground.

Poor communication: Teaching each group of workers how the strategy relates to what they do daily is crucial for strategy execution.

Weak accountability: Accountability, especially in large organisations, is severely lacking. Without explicitly defining roles and responsibilities, no one can really be identified as setting the direction.

Putting things into action requires a plan to support the strategy and it is worth clarifying the difference between goals and strategies, and between objectives and tactics.

Goals and objectives are what is to be accomplished. Strategies and tactics are how the goals and objectives will be accomplished.

So there you have it. Horwath’s Deep dive into Strategic thinking in three simple words: Acumen, Allocation and Action.