By James Beck
Now we can see that, at the higher levels of board thinking, the whole enterprise is put in the context of the overall business situation. Thinking encapsulates past experiences, current information and expectations about the foreseeable future. It is an ongoing process, not the creation of a specific plan. Strategy formulation is idiosyncratic, emergent, non-linear and provides guidance to the ongoing activities of the enterprise.
Bob Garratt, 2003, Developing Strategic Thought
As the end of the calendar year approaches, many boards are turning their minds to the strategic planning cycle for the next 12 months. Directors are now encouraged to ‘think strategically’. Indeed, it is now considered that a board’s role is to think strategically and oversee strategic planning. But what is strategic thinking?
Strategic thinking focuses on finding and developing unique opportunities to create value by enabling a provocative and creative dialogue among people who can affect an organisation’s direction, i.e. the board and management. It is the input to strategic planning. Good strategic thinking uncovers potential opportunities for creating value and challenges assumptions about an organisation’s value proposition, so that when the strategic plan is created, it targets these opportunities. Strategic thinking is a way of understanding the fundamental drivers of a business and challenging conventional thinking about them, in discussion with others. Finally, strategic thinking is having an awareness of what has not yet taken shape, having foresight. Therefore, boards should encourage forward thinking.
It can be difficult to be strategic. But a strategic thinker is always searching for the unusual – something that is different – and is able to set assumptions aside. They intentionally look at things from different perspectives and can resist the urge to let one decision dictate or forecast future decisions, thus avoiding the sunk cost trap. A person who has strategic perspective creates clarity out of complex and seemingly disconnected details. They can feel the winds of change, sense points of conflict and opportunity and articulate in concrete and compelling terms how they can be addressed. They get to the heart of a problem and see the relationship between key elements.
Source: Keelin & Arnold, 2002, ‘Five Habits of Highly Strategic Thinkers’
When engaging in strategic thinking, there are 4 critical questions that should be asked by the board and senior management.
1. What is the economic environment in which we must operate?
Companies must constantly scan the environment for weak signals rather than simply conducting periodic analyses of the business landscape. Changes in one industry or segment often affect companies in others. For instance, who could have imagined that changes brought about by the computer industry and the internet would affect the music industry so radically.
2. What competencies does the organisation have which provide a sustainable competitive advantage?
This question focuses on understanding the relative strengths and weaknesses of the organisation including its human capital, technologies, finances, work processes, etc.
3. What resources support or constrain our actions?
Understanding the organisation’s resource base – such as financial, physical and time – is also a critical element of strategic thinking.
4. What opportunities lay before us?
This question relates to understanding the opportunities available for the organisation to pursue along with consideration of the risks associated with different opportunities and potential courses of action. Having completed strategic thinking, decisions now need to be made.
Beyond these questions, strategic thinkers will also consider:
- What profound shifts are, or will, influence the future?
- What is our direction and response to these shifts?
- How will we describe our desired results in measurable terms?
- What are the best ways and means to get there?
- How will we measure progress and success?
- How will we revise as required?
Wootton and Horne (2001) see strategic thinking as involving three main activities, as shown in Figure 1.
The board’s role in strategic thinking is to bring an outside perspective and accumulated wisdom and to test the consistency of management’s thinking, while the role of senior management is to initiate the process of strategic thinking – set the agenda by posing the questions and issues. A couple of tools to assist with strategic thinking include Blue Ocean Strategy and scenario planning. Blue Ocean Strategy is the simultaneous pursuit of differentiation and low costs with the aim being not to out-perform the competition in the existing industry, but to create new market space or a ‘blue ocean’, thereby making the competition irrelevant. Blue Ocean Strategy provides a set of tools to create new market space. It offers a way to swim out of the red ocean filled with sharks! The strategy canvas is the central diagnostic for building a compelling Blue Ocean Strategy. Blue Ocean Strategy covers both strategy formulation and strategy execution.
Scenario planning can play a meaningful role in strategic thinking due to its focus on the future. Scenario planning explores possible futures based on forecast changes to the competitive environment – what will the organisation look like in 10 or 20 years time. It provides a disciplined means to imagine potential futures that companies have applied to a variety of issues. Scenario planning also plays a useful role in simplifying data into a small range of possible states. Each scenario explains how different elements may interact given certain conditions. Scenarios also support creative thinking in the context of time.
There are, of course, many other tools available to boards to promote strategic thinking such as Hambrick and Fredrickson’s (2001) ‘Integrated Choices’ framework. The choice is up to the individual board. What is important is that the board recognise the need to think strategically, since it is key to the board making a meaningfully contribution to the organisation’s strategy.
Finally, because strategic thinking is a competency needed by all directors, it is important to evaluate whether all board members have this skill. If not, it is crucial that the board receive some training in this area. Strategy workshops facilitated by someone experienced in strategic planning at the board level can be of particular benefit in developing this vital competency. It is also imperative to remember to look for the ability to think strategically when recruiting new board members.
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Garratt, B., ed. 2003. Developing Strategic Thought: A Collection of the Best Thinking on Business Strategy. 2nd ed. London: Profile Books.
Hambrick, D.C. & Fredrickson, J.W. 2001. ‘Are You Sure You Have a Strategy?’ Academy of Management Executive, 15(4): 48-59.
Keelin, T. & Arnold, R. 2002. ‘Five Habits of Highly Strategic Thinkers.’ Journal of Business Strategy, 23(5): 38-42.
Kim, W.C. & Mauborgne, R. 2005. Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant. Boston: Harvard Business School Press.
Wootton, S. & Horne, T. 2001. Strategic Thinking: A Step-by-Step Approach to Strategy. London: Kogan Page.