Strategic Learning: How to Be Smarter Than Your Competition and Turn Key Insights into Competitive Advantage

By Willie Pietersen

How to use Strategic Learning to rapidly respond to change and gain a sustainable advantage over your competitors

What's even harder than creating a breakthrough strategy? Making it stick. As companies are fighting to survive in a tough economy, this new book by Willie Pietersen demonstrates the power of the Strategic Learning process, a four-step dynamic cycle guaranteed to create and sustain winning performance. Adopted by a wide range of corporations and not-for-profit organizations, the Strategic Learning process builds on eight years of practicing, adapting and honing the original concepts Pietersen first introduced in Reinventing Strategy to explain how organizations can generate superior insights about their customers and competitors, craft a Winning Proposition, focus on a vital few key priorities, create buy-in throughout the organization and achieve success – again and again.

• Teaches organizations to make smarter decisions that help them win customers and earn superior profits
• Explains how to instill a culture of openness, learning, and courage that can face and respond to the constantly changing business environment
• Is a tool that can benefit leaders at all levels, in organizations both large and small, global and domestic, for-profit and not-for-profit
• Author Willie Pietersen, a former president of Tropicana and Seagram USA, is a professor of management at Columbia Business School, and the author of Reinventing Strategy, from Wiley

Strategic Learning shows you how your business or nonprofit organization can develop better, more effective strategies for long-term competitive advantage.

• Language: English
• Publisher: Wiley
• Release date: Feb 19, 2010
• ISBN: 9780470609828

Willie Pietersen

Willie Pietersen was born in East London, South Africa and attended Rhodes University in Grahamstown, South Africa, where he earned a BA in law and economics and an LLB in law and was chairman of the Students Representative Council. He was awarded a Rhodes Scholarship to Oxford University in England where he received an MA in jurisprudence. After practicing law, he embarked on an international business career. By 1974, at age 36, Pietersen had become one of the youngest Managing Directors in the history of Unilever. Over a period of twenty years he served as the CEO of multibillion-dollar businesses such as Lever Foods, Seagram USA, Tropicana and Sterling Winthrop's Consumer Health Group. Pietersen has served as a director on several boards including the Institute for the Future (IFTF), a think tank based in Silicon Valley.In 1998, Willie was named Professor of the Practice of Management at the Columbia University Graduate School of Business. He specializes in strategy and the leadership of change, and his methods and ideas, especially Strategic Learning, are widely applied within Columbia's executive education programs, and also in numerous corporations.He is the author of two previous books: Reinventing Strategy, published in 2002, introduced the underlying principles and application tools for Strategic Learning. Strategic Learning, March 2010, builds on these ideas and offers more extensive practical guidelines.

Book preview

INTRODUCTION

The difficulty lies not in new ideas, but escaping the old ones, which penetrate every corner of our minds.

—JOHN MAYNARD KEYNES

No industry is immune from continuous change. Name any product or service and I’ll guarantee that if it had a long lifespan, that lifespan is getting shorter. If it had a short lifespan, it is even more compressed. No barrier to competition remains safe.

The Army War College in Carlisle, Pennsylvania, often called the school for generals, has coined an acronym for an environment in flux: VUCA, for volatile, uncertain, complex, and ambiguous. The term also applies to today’s business landscape. It’s not only that the specific cyclical and structural elements of today’s environment are different, but that they are more volatile, uncertain, complex, and ambiguous than ever before.

Beyond the shock to the system of the recent financial crisis and deep recession that followed—foreseen by hardly anyone—there are deep, ongoing mutations that are revolutionizing the way business is done. The list of changes is a familiar one: profound demographic shifts; the Asian economic advancement; the development of resource nationalism; the growing influence of nongovernment organizations (NGOs), and regulatory changes in banking, energy, healthcare, and food safety. The list goes on. Abetting all these forces are two overarching factors that are producing a transformative impact in their own right: the rapid development of information technology and globalization, and the massive power of these two forces working together.

The consequences of this VUCA environment are being felt by everyone. The shelf life of any advantage is constantly shrinking; competitive intensity is escalating; pricing and profit margins are under pressure; and there is a premium on speed, flexibility, and innovation. In industry after industry that I work with I hear the same refrain: The environment is getting tougher. Global competitors are everywhere. They are faster, more innovative, and more efficient. It’s harder than ever to find a competitive advantage; even harder to sustain it. As one CEO in the healthcare industry said to me, The era of easy money is over. We can no longer rely on product superiority alone. We have to master operational effectiveness, too.

The result is, we now have to play an and game. You no longer have a choice between being a low-cost operator or a great innovator; you have to excel at both low costs and superior customer solutions. If you dwell just on superior customer benefits, then lower costs and a more efficient supply chain will kill you. Conversely, if you focus just on lower costs but don’t pay attention to the needs of customers, that will kill you.

The aim of this book is not to rehash the grainy details of the various changes that are happening around us. The particulars of these will vary from industry to industry. Rather, my purpose is to help clarify the essential nature of this new environment, and then to address what I believe is the larger question: What should be our response to it?

The New Competitive Context

To understand the fundamentals of today’s competitive landscape, it helps to view it in an historical context. When we examine the long-term trends, we can see four big revolutions, each of which ushered in a new era, with totally new challenges and rules for success: the agrarian age, the industrial age, the information age, and our current era—what writer and trend-watcher Daniel Pink has called the conceptual age (see Figure I.1).¹

Figure I.1 History’s Four Big Revolutions

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Note the pace of change. The agrarian age lasted almost 10,000 years, the industrial age 200 years, and the information age 50 years. The conceptual age is only 10 years old.

The change from the information age to the conceptual age has been a radical one. The information age concentrated on the volume and ubiquity of data. It turned information into a commodity, which has become abundant, cheap, and rapidly transferable. In the conceptual age, our source of competitive advantage is no longer finding more information; it is making sense of the overwhelming volume of information already available to us. Sense-making, creativity, and the ability to synthesize, not just analyze, have become paramount.

To succeed in this new world, organizations will need to manage a fundamental shift to a different leadership model, as shown in Figure I.2. Competition in every arena and on every level is affected by these changes.

Whenever the environment shifts in a dramatic way, some species become extinct, while others adapt and thrive. Adapting and thriving in these changing competitive circumstances is going to be extremely challenging and will produce a whole new set of winners and losers.

Figure I.2 Fundamental Shifts

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Winning in the New Environment

What does all this mean for organizational leaders? The answer is the same whether we are engaged in developing national policy, military campaigns, or strategies for commercial or not-for-profit enterprises; and for organizations large and small. Our key leadership challenge is to build adaptive organizations—those with an ingrained ability to make sense of the changing environment, and then rapidly translate these insights into action.

This thought is not new. In fact, it has become something of a rallying cry. We hear it repeatedly in books, speeches, and business articles. But the rhetoric is easy. What has been missing is a practical process to translate this transforming idea into practice.

Reinventing Strategy with Strategic Learning

The way that work gets done in organizations is through systematic processes. Concerted action is not an ad hoc affair. And it certainly does not result from simple exhortations, no matter how often or loudly they are repeated.

The processes we use must be fit for purpose: They must do the job they are designed to do. The old, ritualistic, numbers-based planning methods no longer work today. They were designed for a different, more static era. They are, simply, no longer fit for purpose. In a VUCA environment, our emphasis must shift to insights, ideas, and ongoing renewal. What is necessary is a dynamic method for creating winning strategies and renewing those strategies as the environment changes. We must change our approach from strategy as planning to strategy as learning.

Eight years ago, in my first book, Reinventing Strategy, I laid out a process called Strategic Learning, a practical leadership method for translating these ideas into action. Strategic Learning is a learning-based process for creating and implementing breakthrough strategies. But unlike traditional strategy, which aims at producing one-time change, Strategic Learning drives continuous adaptation.

As shown in Figure I.3, the process has four linked action steps—Learn, Focus, Align, and Execute—which build on one another and are repeated (as a fifth step) in a continuous cycle. In essence, Strategic Learning is an insight to action model. The leadership challenge is to repeat it over and over, so that an organization continuously learns from its own actions and from scanning the environment, and then modifies its strategies accordingly. Strategic Learning combines strategy, learning, and leadership in one unified process.

Figure I.3 Strategic Learning: The Leadership Process

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The underlying ideas and tools of Strategic Learning have since been applied in organizations as wide-ranging as ExxonMobil, Ericsson, DePuy, Novartis, the Federal Home Loan Bank of Atlanta, the Girl Scouts of the USA, and Henry Schein, Inc., among others. The leaders I have worked with feel that the process and the concepts that have inspired it are intrinsically compelling and have made a real difference to their organizations. The Strategic Learning methodology has also become the basis for how strategy is taught at Columbia Business School’s Executive Education programs.

Why This Book?

The past eight years have served as an action learning laboratory. Through my seminars and consulting work, there have been multiple opportunities to apply the principles of continuous learning to the Strategic Learning process. It has been tested in the white heat of the action arena, subjected to intellectual scrutiny and debate by organizational leaders and my colleagues at Columbia University, and assessed in the light of my own experience as a practitioner. Both I and the organizations applying the Strategic Learning process have discovered how to derive better and better results from it. We have learned through trial and error what works and what doesn’t, and which concepts and tools can best help us adapt and excel in the evolving external environment in which we operate.

That’s good, because compared to eight years ago, there is a greater need than ever for a process that enables organizations to make sense of and adapt to the VUCA environment, and do that better than competitors. It also is a healthy reminder that as we keep raising the bar on performance, we must address two gaps: The first is from knowing to doing. That gets us going, but doesn’t carry us far enough. The second, and even more significant gap, is from doing to excelling. Addressing the doing/excelling gap is a journey that never stops.

It is in the spirit of our mutual pursuit of excellence that I write this book. In service of those who are already applying Strategic Learning, I have now incorporated all my latest thinking, enriched by fresh examples and more extensive practical guidelines, which I hope will significantly enhance your effectiveness. For those who are new to Strategic Learning, this book will, I hope, introduce you to a set of ideas that you will find valuable and timely—ideas that you can readily translate into practice. In service of both groups of readers, I have pulled everything together in one place so that it will not be necessary to read the first book in order to get full value from the second.

Getting to Excelling

In the journey from doing to excelling, six key lessons, which I will emphasize in this book, have emerged about the effective application of Strategic Learning:

1. To find great answers, we must discover great questions. It is not possible to address the changing environment with all the right answers. The real challenge is to find the right questions. In fact, producing answers without the right questions can be downright dangerous.

Entrenched answers create fixed mental models. They become a substitute for critical thinking. And, inevitably, they—and the organizations clinging to them—get overtaken by events. The right questions force us to challenge our underlying assumptions. They unfreeze us and open new vistas. Good questions open the doorway to insight; they serve as our portals of discovery. They help us adapt to change.

2. Simplicity is the springboard for success. I constantly challenge and cajole executives to express their strategy in as few words as possible, and then pare it down further to its absolute essence. When I hear the response, It’s more complicated than that, what I think is, You don’t understand it well enough. When you really understand something, you can simplify it. When you don’t, you complicate it.

Simplicity is not a short cut. It is hard work that goes to the very heart of effective leadership. Organizations cannot follow complexity. They are paralyzed by it. The task is to translate your strategy into a simple, compelling leadership message that will win the hearts and minds of all your people in support of what needs to be done. Most important, simplicity creates an intense focus on the right things, the crucial ingredient for success.

3. Strategy means thinking from the outside-in. What happens when co-workers get together for a friendly conversation? Most of the time, they talk about themselves: who’s who in the zoo, who’s doing what to whom, why so and so was promoted or not promoted, and so on. It’s all about us—our team, our organization, our culture, our bosses. This is a natural state of affairs. But organizations that aim to become adaptive have to get used to an unnatural act: outside-in thinking.

Outside-in thinking means the conversation starts with the competitive environment outside the organization: Who are our customers? What do they value most? What are our competitors doing? What are the key industry trends that might affect how we make money? Thinking strategically means thinking with that outside-in mind-set. Functioning strategically means making decisions based on that mind-set.

The leap from knowing and doing to excelling takes place in the space between the challenges of the external environment and our internal abilities to meet them.

4. The point of strategy is to win the battle for value creation.

There is a great deal of confusion about the key deliverable of a strategy. The result is that the outputs are often bland, all-embracing statements—meandering lists of what the organization plans to do. They amount to one-size-fits-all declarations that could be equally well applied to an organization’s competitors.

Such pronouncements are useless. In a competitive environment, everything is comparative. Customers have choices. The question is: Why should they choose to do business with you? The same applies to investors: Why should they decide to give you their money? Competing successfully means providing a margin of difference in the value you offer these two key stakeholders.

In short, strategy must define how an organization will win the competition for value creation. This means creating greater value for its customers and investors than the competing alternatives. Without a clear statement of how it will achieve such an aim—what I call a Winning Proposition—an organization cannot claim to have a strategy.

5. Strategy is everyone’s job. I am often asked, Whose job is it to create the strategy for an organization? The answer that is expected is, The top leadership, of course.

That answer is wrong. It is based on an outdated command and control philosophy. The truth is that it is everyone’s job. The senior leaders, of course, have a crucial role: They must define the direction and strategic goals of the organization. But that’s not where it stops. That’s where it starts. It is the leadership responsibility of each manager at every level in an organization to create a clear line of sight to the organization’s overarching goals, and then to translate those into a winning strategy for his or her domain of responsibility.

The logic is simple and unforgiving. It’s a matter of strategic cohesion. If an organization is to win at value, then every subgroup in that organization must contribute to that value generation, or simply be a cost drag. There’s nothing in between.

6. Strategy and leadership are essential parts of each other. Strategy does not have a life of its own. It is an inseparable part of leadership.

Leadership comprises three key domains:

• Intrapersonal leadership—leadership of self

• Strategic leadership—leadership of the organization

• Interpersonal leadership—leadership of others The key to success is integrated leadership, ensuring that all three domains are working hand in hand, each one supporting the others. When any one is missing, the others cannot succeed.

All these lessons add up to one overarching epiphany: the importance of the human dimension. Of course, this is not news. Leaders constantly declare that our people are our strongest asset. I ran companies for 20 years and know from personal experience that the difference between commitment and mere compliance is monumental. But the more I explore the potential of the Strategic Learning process, the more I am struck by the crucial role of the human spirit. It is the governing factor in the success or failure of any organization, or indeed any individual.

Napoleon, who is acknowledged to be the most successful military leader in modern history, was supposedly asked which was more important: material or spiritual resources? His answer: spiritual resources—by a factor of three to one. I don’t know whether the story is apocryphal, but from my own experience running large organizations, I believe the ratio is absolutely right. In the final analysis, our leadership mission is to bring out the best in ourselves and each other. If we can’t win hearts and minds, the greatest strategy in the world won’t go anywhere, let alone help our organizations advance from knowing to doing to excelling.

PART I

What Every Organization Needs to Know about Strategy

CHAPTER 1

The Real Job of Strategy

Our lives are the sum of the choices we make.

—Albert Camus

Organizations create their futures through the strategies they pursue. These strategies may be developed in a thoughtful and systematic way or allowed to emerge haphazardly in a series of random, ad hoc decisions made in response to daily pressures. But one way or another, the strategy a company follows—that is, the choices it makes—determines its likely success. And in today’s fast-changing environment, the ability to generate winning strategies, develop the tools to apply them, and mobilize employee commitment—not once but repeatedly—is more important than ever.

Yet astonishingly few executives, let alone the rank and file, are able to explain their company’s strategy in a clear and compelling way. The trouble is that strategy is a largely misunderstood and misapplied concept. Somehow, there’s a notion that strategy is complex and mysterious, something best left to gurus and experts. Actually, the opposite is true. It’s not at all arcane. In fact, it’s dead simple, and therein lies its power.

It’s puzzling that so few companies have devoted sufficient time or energy to clarifying the nature of strategy or to creating an effective, organization-wide method for developing winning strategies. Instead, many of them plunge directly into strategy formulation on impulse, without defining a clear process. It’s as if the manager of an auto assembly plant were to dump a load of parts onto the factory floor and tell the workers, Here, make some cars, without defining a manufacturing process with the end product in mind.

The penalties for this lack of strategic leadership are considerable. A survey of 336 organizations by Right Management Consultants found that two-thirds of employees do not know or understand their company’s strategy.¹ A poll of 23,000 employees highlighted by Stephen Covey paints a similarly disturbing picture:²

• Only 37 percent said they have a clear understanding of what their organization is trying to achieve, and why.

• Only 20 percent were enthusiastic about their team’s and their organization’s goals.

• Only 20 percent said they had a clear line of sight between their tasks and their organization’s goals.

It is hard to imagine how such companies can hope to survive and thrive with this lack of clarity and employee alignment on strategic direction. In fact, the evidence shows that the ability of organizations to maintain success in our VUCA (volatile, uncertain, complex and ambiguous) environment is inexorably declining. A survey of Fortune 1000 companies since 1973 found that between 1973 and 1983, 35 percent of the top 20 names were new (see Figure 1.1). The number rose to 45 percent in the following decade, and between 1993 and 2003, shot up to 60 percent.³

This state of affairs suggests that one of the highest hurdles facing organizational leaders today is their inability to mobilize their companies behind strategies that create and sustain competitive advantage.

Figure 1.1 Fortune 1000 Companies: Percent New in Top 20

Source: Edward E. Lawler III and Chris Worley, Built to Change: How to Achieve Sustained Organizational Effectiveness (Jossey-Bass, 2006).

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The

Reviews for Strategic Learning

[razinha-1 · Rating: 3 out of 5 stars]

I see this as a book on strategic leadership - the "learning" part of the title perhaps implies that the reader must learn how to be strategic. As it is a core text for a management program I am a part of, I will re-read it at least once more this year and likely get more out of it (I did make quite a few margin notes and flag points I thought were key, but there is always more to learn.) For now, the jury is out on whether to recommend or not.