Involving more senior leaders in a dialogue about strategic direction allows leaders to get their organization to be ready to face emerging opportunities and to respond quickly to unexpected threats, say McKinsey colleagues Chris Bradley, Lowell Bryan, and Sven Smit, in their McKinsey contribution, “Managing the strategy journey.” For far too long the writers say that strategy has been the domain of a small group including the CEO and the chief strategist who is more often than not protective of their domain.
Companies they say are well advised to exercise their strategy muscles by broadening the approach by including business unit heads and others responsible for execution. They offer three tips that any executive can act on to become more strategic. They The suggestions may appear deceptively simple, but based on interviews with company leaders and their client experience, these ideas represent foundational skills for any strategist provided leaders put them into practice. In summary these are:
“1. Understand what strategy really means in your industry
General ideas can be misleading, and as strategy becomes the domain of a broader group of executives, more will also need to learn to think strategically in their particular industry context. It is not enough to do so at the time of a major strategy review. Because strategy is a journey, executives need to study, understand, and internalize the economics, psychology, and laws of their industries, so that context can guide them continually.
For example, being able to think strategically in the high-tech industry involves a nuanced understanding of strategy topics such as network effects, platforms, and standards. In the utilities sector, it involves mastery of the economic implications of (and room for strategic maneuvers afforded by) the regulatory regime. In mining, leaders must understand the strategic implications of cost curves, game theory, and real-options valuation; further, they must know and be sensitive to the stakeholders in their regulatory and societal environment, many of whom can directly influence their opportunities to create value.
We know organizations that have taken management teams off-site to focus not on setting strategy but on deepening their understanding of how to be a strategist in their industries. For example, one raw-materials player headquartered in Europe took its full leadership team to Asia for a week, in hopes of shaking up the team’s thinking. Executives explored in depth 20 trends that would shape the industry over the next decade, discussing both the trends themselves and their implications for the supply of and demand for the organization’s products. They also looked across their industry’s full value chain to understand who was making money and why—and how the trends would change that. A number of the executives in the discussion were surprised by how much value certain specialized intermediaries were capturing and others by how the organization was losing out to competitors that were financing retailers to hold their inventory. The executive team emerged with a clearer appreciation of where the opportunities were in its industry and with ideas to capture them.
Building this kind of industry understanding should be an ongoing process not just because we live in an era of more dynamic management but also because of the psychology of the individual. Experience-based instincts about “the way things work” heavily influence all of us, making it hard, without systematic effort, to take advantage of emerging strategic insights or the real lessons of an industry’s history. War games or other experiential exercises are one way executives can help themselves to look at their industry landscape from a new vantage point.
2. Become expert at identifying potential disrupters
Expanding the group of executives engaged in strategic dialogue should boost the odds of identifying company or industry-disrupting changes that are just over the horizon—the sorts of changes that make or break companies.
But those insights don’t emerge magically. Consider, for example, technological disruption. For many executives, the rise up the corporate ladder requires a deep understanding of industry-specific technologies—those embedded in a company’s products, for example, or in manufacturing techniques—but much less knowledge of cross-cutting technology trends, such as the impact of sensors and the burgeoning “Internet of Things.” Moreover, many senior executives are happy to delegate thinking about such technology issues to their company’s chief information officer or chief technology officer. Yet it’s exactly such cross-cutting trends that are most likely to upend value chains, transform industries, and dramatically shift profit pools and competitive advantage.
So what to do? Some executives choose to spend a week or two visiting a technology hub, such as Silicon Valley, to meet companies, investors, and academics. Others ask a more technophile member of the team to keep abreast of the issues and brief them periodically.
Picking up weak competitive signals is more often than not a result of careful practice: a systematic updating of competitive insights as an ongoing part of existing strategic processes. Executives with diverse backgrounds can boost the quality of dialogue by contributing to—and insisting on—issue-based competitive analyses. Who is well-positioned to play in emerging business areas? If new technologies are involved, what are they, and who else might master them? Who seems poorly positioned, and what does that mean for competitive balance in the industry or for acquisition opportunities? Focusing competitive reviews on questions like these often yields insights of significantly greater value than would be possible through the more common practice of periodically examining competitors’ financial and operating results. It also helps push the senior team away from linear, deterministic thinking and toward a more contingent, scenario-based mind-set that’s better suited to today’s fast-moving strategy environment.
3. Develop communications that can break through
A more adaptive strategy-development process places a premium on effective communications from all the executives participating. The strategy journey model described by our colleagues, for example, involves meeting for two to four hours every week or two to discuss strategy topics and requires each executive taking part to flag issues and lead the discussion about them.
In such an environment, time spent looking for better, more innovative ways to communicate strategy—to make strategic insights cut through the day-to-day morass of information that any executive receives—is rarely wasted. This requires discipline, as it is always tempting to invest in further analysis so that the executive has a deeper grasp of the issues rather than in communications design to ensure that everybody has a good grasp of them. It also may require building new skills; indeed, developing messages that can break through the clutter is becoming a required skill for the modern strategist.
Experiential exercises are one way of boosting the effectiveness of strategic communications within a top team. A strategist we know at a shoe manufacturer wanted to illustrate the point that many of his company’s products were both unattractive and expensive. He started with a two-by-two matrix. So far, so predictable. But his matrix was built using masking tape on the floor of the executive suite, and the shoes were real ones from the company and its competitors. His colleagues had to classify the shoes right there and then—and he made his point. Similarly, we know another strategist who spent an afternoon cutting the labels off samples of men’s boxer shorts. She wanted the board members to put them in order of price so they could see how their perceptions of quality were driven by brands and not manufacturing standards.”