The Strategist: Be the Leader Your Business Needs

Dedication

TO

ANNEKE, MATHEA, AND NILS

THAT YOU MAY FIND PLACES WHERE YOU

CAN MAKE A DIFFERENCE THAT MATTERS

AND TO BJØRN, FOREVERMORE

Epigraph

IN THE END, IT IS

IMPORTANT TO REMEMBER

THAT WE CANNOT BECOME

WHAT WE NEED TO BE BY

REMAINING WHAT WE ARE.

MAX DE PREE, CEO OF HERMAN MILLER,

IN LEADERSHIP IS AN ART

Contents

Cover

Title Page

Dedication

Epigraph

Introduction: What I Learned in Office Hours

1 Strategy and Leadership

2 Are You a Strategist?

3 The Myth of the Super-Manager

4 Begin with Purpose

5 Turn Purpose into Reality

6 Own Your Strategy

7 Keep It Vibrant

8 The Essential Strategist

Author’s Note

Frequently Asked Questions

Recommended Reading

Notes

Searchable Terms

Acknowledgments

Copyright

About the Publisher

INTRODUCTION

WHAT I LEARNED IN OFFICE HOURS

YOU’RE ABOUT TO get a revisionist view of strategy. It’s not that what you’ve learned is incorrect. It’s that it’s incomplete.

Strategy is a fundamental course at nearly every business school in the world. I have been privileged to teach variations of it for more than thirty years—first at the University of Michigan, then at the Kellogg School at Northwestern, and for the last twenty-plus years at the Harvard Business School.

For most of that time I worked with MBA students, until the center of my teaching shifted to executive education. It was this experience, particularly a five-year stint in Harvard’s Entrepreneur, Owner, President program (EOP), that inspired this book.1 Working intimately with leaders from nearly every industry and nation as they confronted their own real-world strategic issues changed not only how I teach strategy, but, more fundamentally, how I think about it. The experience led me to challenge some of strategy’s basic precepts, and ultimately to question both the culture and mind-set that have grown up around it. Even more important, teaching in EOP forced me to confront how strategy is really made in most businesses, and by whom.

All of this convinced me that it is time for a change. Time to approach strategy in a different way and time to transform the process from a mechanical, analytical activity to something deeper, more meaningful, and far more rewarding for a leader.

THE ROAD TO HERE

Fifty years ago strategy was taught as part of the general management curriculum in most business schools. In the academy as well as in practice, it was identified as the most important duty of the president—the person with overarching responsibility for setting a company’s course and seeing the journey through. This vital role encompassed both formulation and implementation: thinking and doing combined.

Although strategy had considerable depth then, it didn’t have much rigor. Heuristically, managers used the ubiquitous SWOT model (Strengths, Weaknesses, Opportunities, and Threats) to assess their businesses and identify attractive competitive positions. How best to do that, though, was far from clear. Other than making lists of various factors to consider, managers had few tools to help them make these judgments.

In the 1980s and ’90s, my colleague Michael E. Porter broke important new ground in the field. His watershed came in firming up the Opportunities and Threats side of the analysis by bringing much-needed economic theory and empirical evidence to strategy’s underpinnings, providing a far more sophisticated way to assess a firm’s competitive environment. This led to a revolution in both the practice and teaching of strategy. In particular, managers came to understand the profound impact industry forces could have on the success of their businesses and how they could use that information to position their firms propitiously.

Advances over the next few decades not only refined the tools but spawned a whole new industry. Strategy in many ways became the bailiwick of specialists—legions of MBAs and strategy consultants, armed with frameworks, techniques, and data—eager to help managers analyze their industries or position their firms for strategic advantage. In truth, they had a lot to offer. My own academic training and research in this period reflected this intellectual environment, and what I did in the classroom for many years thereafter was a living embodiment of this “new” field of strategy.

In time, though, a host of unintended consequences developed from what in its own right was a very good thing. Most notably, strategy became more about formulation than implementation, and more about getting the analysis right at the outset than living with a strategy over time. Equally problematic, the leader’s unique role as arbiter and steward of strategy had been eclipsed. While countless books have been written about strategy in the last thirty years, virtually nothing has been written about the strategist and what this vital role requires of the person who shoulders it.

It wasn’t until years into this shift that I fully realized what had happened. It was classic Shakespeare: As a field, we had hoisted ourselves on our own petard. We had demoted strategy from the top of the organization to a specialist function. Chasing a new ideal, we had lost sight of the value of what we had—the richness of judgment, the continuity of purpose, the will to commit an organization to a particular path. With all good intentions, we had backed strategy into a narrow corner and reduced it to a left-brain exercise. In doing so, we lost much of its vitality and much of its connection to the day-to-day life of a company, and we lost sight of what it takes to lead the effort.

Teaching in the EOP program drove these insights home for me.

When I first started working with the group, I used a curriculum that was much like one I would use in any executive program. Through a series of class discussions and presentations, we discussed the enduring principles of strategy, the frameworks that capture them, and a series of case studies that brought the concepts and tensions alive. We still do that—and it’s a valuable part of what we do.

But in between class sessions, the EOP students—all accomplished executives and entrepreneurs—started to ask if they could meet me in my office to talk about various situations they were facing in their companies. These conversations often took place at unusual hours, and sometimes lasted far into the evening. Most started out predictably enough: We talked about the conditions in their industries, the strengths and weaknesses of their own companies, and their efforts to build or extend a competitive advantage. Some discussions ended there, and a thoughtful application of whatever we’d been doing in class seemed to meet the need.

Often, though, these conversations took a different turn. Alongside all the conventional questions were ones about what to do when the limits of analysis had been reached and the way forward was still not clear; questions about when to move away from an existing competitive advantage and when to try to stay the course; questions about reinventing a business or identifying a new purpose, a new reason to matter. Even though many of the companies at issue were remarkably successful (one had grown from a start-up to $2 billion in revenue in just nine years), almost none had the kind of long-run sustainable competitive advantage that strategy books tout as the Holy Grail.

Working with these managers, typically over three years, and hearing the stories within the stories, I came to see that we cannot afford to think of strategy as something fixed, a problem that is solved and settled. Strategy—the system of value creation that underlies a company’s competitive position and uniqueness—has to be embraced as something open, not something closed. It is a system that evolves, moves, and changes.

In these late-night one-on-one conversations, I also saw something else: I saw the strategist, the human being, the leader. I saw how responsible these executives feel for getting things right. I saw how invested they are in these choices, and how much is at stake. I saw the energy and commitment they bring to this endeavor. I saw their confidential concerns, too: “Am I doing this job well? Am I providing the leadership my company needs?”

And, more than anything, I saw in these conversations the tremendous potential these leaders hold in their hands, and the profound opportunity they have to make a difference in the life of a company. In those moments together, we both came to understand that if their businesses were going to pull away from the pack, to create a difference that mattered, it had to start with them.

A NEW UNDERSTANDING

In all our lives there are times of learning that transform us, that distance us from the familiar, and make us see it in new ways. For me, the EOP experience was one of those times. It not only changed some of my most central views about strategy; it gave me a new perspective on the strategist, and on the power and promise of that role.

In these pages I will share with you what I have learned. In doing so, I hope that you will gain a new understanding about what strategy is, why it matters, and what you must do to lead the effort. I also hope that you will come to see that beyond the analytics and insights of highly skilled advisors and the exhortations of “how-to” guides, there is a need for judgment, for continuity, for responsibility that rests squarely with you—as a leader.

Because this role rests with you, The Strategist is a personal call to action. It reinstates an essential component of the strategy-making process that has been ignored for decades: You. The leader. The person who must live the questions that matter most.

That’s why my ultimate goal here is not to “teach strategy,” but to equip and inspire you to be a strategist, a leader whose time at the helm could have a profound effect on the fortunes of your organization.

1

STRATEGY AND LEADERSHIP

Does your company matter?

That’s the most important question every business leader must answer.

If you closed its doors today, would your customers suffer any real loss? 1 How long would it take, and how difficult would it be, for them to find another firm that could meet those needs as well as you did?

Most likely, you don’t think about your company and what it does in quite this way. Even if you’ve hired strategy consultants, or spent weeks developing a strategic plan, the question probably still gives you pause.

If it does or if you’re not sure how to respond, you’re not alone.

I know this because I’ve spent the better part of my life working with leaders on their business strategies. Again and again, I’ve seen them struggle to explain why their companies truly matter. It’s a difficult question.

Can you answer it?

If you cannot, or if you’re uncertain of your answer, join me as I explore this question with a group of executives now gathering.

It is evening on the campus of the Harvard Business School. The kickoff orientation to the Entrepreneur, Owner, President program (“EOP” for short), one of the flagship executive programs at the school, is about to begin. Along with five of my fellow faculty, I sit in the “sky deck,” the last and highest row of seats, in Aldrich 112, an amphitheater-style classroom characteristic of the school, and watch as the newest group of executives stream into the room.

I see that there are considerably more men than women, and that the majority appear to be in their late thirties to mid-forties. Most exude an air of seasoned self-confidence. That’s no surprise—they’re all owners, CEOs, or COOs of privately held companies with annual revenues of $10 million to $2 billion—the kind of small- to medium-size enterprises that drive much of the global economy. Most arrived on campus within the last few hours and have had just enough time to find their dorm rooms and meet the members of their living groups before heading here to Aldrich.

The information they provided in their applications tells part of their stories: Richard, a third-generation U.S. steel fabricator; Drazen, CEO of a media firm in Croatia; Anna, founder and head of one of the largest private equity groups in South America; and Praveen, the scion of a family conglomerate in India. But this is just a taste of their diversity and accomplishments. The richer details and the breadth of the class will emerge in the weeks ahead.

As the clock ticks past the hour, some last-minute arrivals burst through the door. They are typical first-time EOPers in their lack of concern about being late. Most of these people hail from worlds where meetings don’t start until they arrive. That will change in the coming days, as they make the adjustment from the top-of-the-line leather chairs in their offices back home to the standard-issue seats that line the classrooms. Indeed, for their time here, they will be without many of the supports they rely on in their daily lives, such as administrative assistants and subordinates to whom they can delegate work and problems. Families are strongly discouraged from living near campus and are prohibited from dorms once classes begin. BlackBerrys and cell phones are allowed, but never in class.

A final hush settles as the program begins with an overview of who’s here: 164 participants from thirty-five countries, with a collective 2,922 years of experience. Two-thirds of their businesses are in service industries, the remainder in manufacturing.

They are here to participate in an intensive management boot camp for experienced business leaders. It spans topics in finance, marketing, organizational behavior, accounting, negotiations, and strategy, and runs for nine weeks in total, divided into three three-week sessions spread over three years. Between sessions, students return to their businesses and start to apply what they have learned. Debriefs the following year are an opportunity for feedback and reflection on what has worked and what hasn’t. This structure has given the faculty an exceptional opportunity to develop a hands-on curriculum that brings theory and practice much closer together, even for a school that has always championed the connection.

Why do these talented, seasoned managers from every major world culture come to this program? As heads of their companies, why do they elect to spend tens of thousands of dollars to send themselves to school?

THE VIEW FROM THE BALCONY

If past participants are any indication, these executives have not come to seek specific answers to narrow questions. They have come to learn how to be more effective leaders and to find ways to make their businesses more successful. Successful in what ways, and through what means, for most, is still an open question. They are here to throw themselves into the program, to be challenged, to discover what they might learn in this environment.

This experience will be an important juncture for many, in their careers and even their lives. What they learn here will lead them to think in broader, more far-reaching ways. To explain how this happens, I’ve always liked the metaphor of a dance taking place in a great hall. Most dancers spend all their time on the dance floor, moved by the music, jostled by dancers around them, completely absorbed in the flow. But it’s not until they extricate themselves from the crowd and move to the balcony above that the larger picture becomes clear. It is then that overall patterns become apparent and new perspectives emerge. Often these reveal opportunities for better choices about what to do down on the dance floor.

Many EOPers have spent years without ever leaving the dance floor. Absorbed by the day-to-day challenges of running a business, they’ve never gone to the balcony. On one level, our job is to help them understand the value of going to the balcony in the first place. On another, it is to equip them with the tools to see their dances in new ways, ways that reveal options they may never have considered before.

THE STRATEGY COURSE

When it’s time for the faculty to introduce their courses, I stand and give a quick summary of the work we’ll be doing in strategy. Like most businesspeople, these managers are likely to be familiar with at least a vague definition of strategy. The word itself comes from the ancient Greek for “general”—specifically for the general on campaign in the field. In business, strategy is a company’s campaign in the marketplace: the domain in which it competes, how it competes, and what it wants to accomplish.

We will begin our journey with the fundamentals—what strategy is, how to craft it, and how to evaluate it. We’ll then push the envelope on current practice by challenging strategy’s elusive goal—the long-run sustainable competitive advantage—and introduce a dynamic model of strategy that is better grounded and better suited for the competitive realities most managers face.

All of this material is prelude to the last and most challenging task they will face here, when every member of the class will be asked to apply the concepts and frameworks we’ve been studying to their own companies and present their own strategies for critiquing by their EOP colleagues. The exercise takes many days and, in the end, the class votes on a winner, what they consider the “best strategy” in the group.

This step from the general to the highly particular, from the objective to the subjective, is where things become profoundly real for most executives. This is when the appraisals of cases—now their cases—get deadly serious and the discussions especially heartfelt. These are competitive people. A spirit of intense rivalry prevails. Most refine their strategies through multiple iterations, often working through the night for one more iteration. These weeks are arduous for some, exhilarating for others, and, for most, a healthy mix of both.

GETTING TO THE REALITY OF YOUR STRATEGY

Having seen hundreds if not thousands of such strategies in their initial form, what is clear to me is this: Many leaders haven’t thought about their own strategies in a very deep way. Often, there is a curious gap between their intellectual understanding of strategy and their ability to drive those insights home in their own businesses.

Some EOPers find it extremely difficult to identify why their companies exist. Accustomed to describing their businesses by the industries they’re in or the products they make, they can’t articulate the specific needs their businesses fill, or the unique points that distinguish them from competitors on anything beyond a superficial level. Nor have they spent much time thinking concretely about where they want their companies to be in ten years and the forces, internal and external, that will get them there.

If leaders aren’t clear about this, imagine the confusion in their businesses three or four levels lower. Yet, people throughout a business—in marketing, production, service, as well as near the top of the organization—must make decisions every day that could and should be based on some shared sense of what the company is trying to be and do. If they disagree about that, or simply don’t understand it, how can they make consistent decisions that move the company forward? Similarly, how can leaders expect customers, providers of capital, or other stakeholders to understand what is really important about their companies if they themselves can’t identify it? This is truly basic—there is no way a business can thrive until these questions are answered.

Even so, the exercises in EOP are designed to do more than set high standards, communicate concepts, and improve participants’ existing strategies. The overarching goal is something different, something deeper and more personal. It is to make clear to these executives that strategy is the heart of the ongoing leadership their companies need from them. That’s why competition for “best strategy” is so hard fought and generates so much energy. CEOs, accustomed to asking questions and being deferred to, are challenged by their peers and encouraged to think and rethink parts of their strategies they’d taken for granted. Most of them describe it as a pivotal experience that fundamentally changes their views of their own businesses.

Behind the scenes, though, the real contest is closer in: It’s each of these leaders pushing their own ideas to the increasingly high standards they themselves have come to demand of excellent strategies and of themselves as leaders. It’s that process, more than any short-term answers they might find here, that will serve them well in the long run.

LEADERSHIP AND STRATEGY ARE INSEPARABLE

Many leaders today do not understand the ongoing, intimate connection between leadership and strategy. These two aspects of what leaders do, once tightly linked, have grown apart. Now specialists help managers analyze their industries and position their businesses for competitive advantage, and strategy has become largely a job for experts, or something confined to an annual planning process. In this view, once a strategy has been identified, and the next steps specified, the job of the strategist is finished. All that remains to be done is to implement the plan and defend the sustainable competitive advantage it has wrought. Or at least that’s the positive take on the story.

But, if this were so, the process of crafting a strategy would be easy to separate from the day-to-day management of a firm. All a leader would have to do is figure it out once, or hire a consulting firm to figure it out, and make sure it’s brilliant. If this were so, the strategist wouldn’t have to be concerned with how the organization gets from here to there—the great execution challenge—or how it will capitalize on the learning it accumulates along the way.

But this is not so.

What’s been forgotten is that strategy is not a destination or a solution. It’s not a problem to be solved and settled. It’s a journey. It needs continuous, not intermittent, leadership.

It needs a strategist.

Good strategies are never frozen—signed, sealed, and delivered. No matter how carefully conceived, or how well implemented, any strategy put into place in a company today will eventually fail if leaders see it as a finished product. There will always be aspects of the plan that need to be clarified. There will always be countless contingencies, good and bad, that could not have been fully anticipated. There will always be opportunities to capitalize on the learning a business has accumulated along the way.

The strategist is the one who must shepherd this ongoing process, who must stand watch, identify and weigh, decide and move, time and time again. The strategist is the one who must decline certain opportunities and pursue others. Consultants’ expertise and considered judgments can help, as can perspectives and information from people throughout an organization. But, in the end, it is the strategist who bears the responsibility for setting a firm’s course and making the choices day after day that continuously refine that course.

That is why strategy and leadership must be reunited at the highest level of an organization. All leaders—not just those who are here tonight—must accept and own strategy as the heart of their responsibilities.

I say little of this tonight in the classroom. But it is on my mind as I return to my seat in the sky deck and reflect on all the would-be strategists I’ve worked with over the years as well as those of you who are just starting out. My hope is that you will come not only to understand the vital role of the strategist, but also to embrace it for yourself.