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

INTRODUCTION

The New Competitive 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 — the ‘‘conceptual age’’

Note the pace of change. Agrarian age lasted 10,000 years, Industrial Age last 200 years, Information Age lasted 50 years, Conceptual Age is 10 years old.

• 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.

It’s a VUCA environment today: Volatility, uncertainty, complexity and ambiguity

• 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.
• We must change our approach from ‘‘strategy as planning’’ to ‘‘strategy as learning.’’What is necessary is a dynamic method for creating winning strategies and renewing those strategies as the environment changes.
• 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.

Four action steps:

1. Learn
2. Focus
3. Align
4. Execute

Strategic learning combines strategy, learning, and leadership in one unified process.

As we keep raising the bar on performance, we must address two gaps:

1. From knowing to doing
2. Doing to excelling

Getting to excelling:

• To find great answers, we must discover great questions: 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.
• Simplicity is the springboard for success: 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.
• Strategy means thinking from the outside in: 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 point of strategy is to win the battle for value creation: 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.
• Strategy is everyone’s job: The senior leaders, of course, have a crucial role: They must define the direction and strategic goals of the orga- nization. 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.
• Strategy and leadership are essential parts of each other

Leadership comprises of three key domains:

• Intrapersonal leadership — Leadership of self
• Strategic leadership — leadership of the organization
• Interpersonal leadership — leadership of others

PART 1: WHAT EVERY ORGANIZATION NEEDS TO KNOW ABOUT STRATEGY

Chapter 1: The Real Job of Strategy

• Organizations create their futures through the strategies they pursue.
• 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.
• Few executives, let alone the rank and file, are able to explain their company’s strategy in a clear and compelling way.

What is strategy?

Strategy is, simply, the sum of an organization’s choices about where it will compete, how it will create superior value for its customers, and how it will generate superior returns to its investors. In a world of limited resources, a company that tries to be all things to all people, with no specific focus or direction, will soon squander its resources and either fall behind its competitors or go out of business.

If you had unlimited resources, there would be no requirement for a strategy because there would be no need to decide what not to do. But in the real world, there is no such thing as unlimited resources. The way that competition expresses itself is through the interaction of choices in the marketplace. The smartest choices, well executed, will win the game.

What key questions must strategy answer for us? What do the key deliverables of strategy look like?

• If it is to create value, strategy must provide a good return on the time and effort we put into it.
• The first and most crucial point is that a strategy must define how you will win.
• On this point, we must be clear: Winning in business means winning at value.
• The key questions strategy must answer?

• Answering these questions forces an enterprise to make its critical strategic choices and thereby harness the power of concentration.
• The ultimate purpose of a strategy is to create clarity of focus.
• This in turn is the essential platform for leadership effectiveness.

The essence of strategy:

Strategy and Planning are Different

There is always a confusion between strategy and planning.

Because their outputs are so different, combining strategy and planning into one process is a toxic mixture. The evidence suggests that such a combination is likely to produce 90 percent planning and only 10 percent strategy. Planning becomes a substitute for strategy. Over time, such companies and their people will lose the ability to think and act strategically.

Chapter 2: Getting Competitive Advantage: How much more value do you deliver than your competitors?

If an organization can’t define its Winning Proposition in a simple and compelling way, it cannot claim to have a strategy.

A simple test: a Winning Proposition must clearly produce a competi- tive advantage for your organization.

I would argue that competieve advantage is the single most important gauge of organizational success.

Defining Competitive Advantage

As this diagram shows, you achieve competitive advantage if your value/cost gap is bigger than that of your competitors. Let’s briefly examine the elements involved in this simple measure. Value can be described as the numerator, and costs as the denominator.

The denominator (costs) is straightforward. Any organization can — and should — regularly benchmark its costs against those of its competitors. Published data, supported by good analysis, can be relied upon to produce a well-grounded comparison. This is not par- ticularly difficult. It is done all the time.

But what about the numerator? How do you compare the value your organization creates against your competitors? The crucial point to understand is that there is a dynamic interaction between value, price, and volume. Value is the driver — the prime mover, if you like. Price and volume are derivatives of value; they have no independent existence. So to assess the amount of value you are creating, look at its outputs: price and volume. This is the ultimate gauge of the amount of value you are generating.

How do you measure whether you are producing superior cus- tomer value? Rather than just claiming it, you can assess it. When you are generating greater value than your competition, you can either charge a premium price without sacrificing volume, or you can improve market share at comparable prices. If you are losing on value, then both volume and price will be under pressure, and one or both will be falling. Market share does not have a life of its own; it’s a child of customer value. Similarly, price does not have an indepen- dent existence; it, too, is a derivative of value. This logic is ruthless: Your customers will convey it to you very loudly in very simple terms. Customers will buy more of your offerings, or pay you a higher price for them, only if they place a higher value on them than the competing alternatives. And, of course, the reverse is also pain- fully true.

Stretching the Elastic Band

Competing on costs is a requirement for staying in the game. Creating superior value is a necessity for winning the game.

There is, in the final analysis, no such thing as a commodity. Many people might consider cement or an airline trip to be a com- modity, but these examples prove otherwise. To be sure, you can try to compete on price, but price cuts can be quickly neutralized, and the net effect is to transfer profits to customers. What companies like Cemex, Virgin Atlantic, and Singapore Airlines demonstrate is that when you consider the total customer experience, not just the underlying product, you can always find ways of generating superior value. To call your product or service a commodity is to abandon the pursuit of value, and hence the pursuit of competitive advantage.

A second point is that it is perceived value that counts. A brand is a perception of value in the mind of the customer. The customer’s subjective reality is your objective reality.

Value Leadership through a Winning Proposition

Pursuing value is obviously the right thing to do, but this is plainly not a competitive statement. It ignores the most important question of all: How much value?

In a competitive marketplace, absolutes have no meaning. It’s the margin of difference — the gap — that counts. All value is relative, and customers have choices. Com- petitive advantage comes from providing greater value than your competitors for your chosen customers. The task, in other words, is value leadership.

This is where the words we use really matter. If something is crucially important, we should make it explicit, not hint at it in- directly. The problem is that companies so often allow the competi- tion for superior value to be implicit, so that it happens by default. They need to make it explicit, and the way to do that is through a clear Winning Proposition.

An organization’s Winning Proposition encapsulates measurable competitive advantage and defines how an organization will win the competition for value creation. It does that by answering these questions:

Part II: Applying Strategic Learning to Create an Adaptive Enterprise

Chapter 3: Strategic Learning Four Key Steps, One Cycle

Complexity creates confusion, confusion creates inconsistency, and inconsistency creates failure.

Chapter 4: Using a Situation Analysis to Generate Superior Insights about Your External Environment and Your Own Realities

• Businesses fail most often because the assumptions on which the organization has been built and is being run no longer fit reality.

The Sense and Respond Imperative

• It is a condition for success that organizations must become ‘‘sense and respond’’ enterprises in order to go on adapting as the environ- ment changes.
• Drucker’s and McKinsey’s point is that concentrating just on responding isn’t good enough. You have to complete the sensing part of the formula first — and excel at it — if you want to pro- duce the most intelligent response.

Leading Through Strategic Learning:

• Strategic Learning process always starts with a Situation Analysis, a rigorous and systematic exercise for generating superior insights into the external environment and an organization’s own realities.
• The Situation Analy- sis is the engine room of strategy creation.
• Outperforming competi- tors on insights and then acting on them is what gives an organization its highest probability of success. This is where the competition for competitive advantage really begins.

Learning through the Situation Analysis

Chapter 8: Translating your strategy into a compelling leadership message

• The fourth and final golden rule for the effec- tive implementation of your strategy: Create a simple leader- ship message to win the hearts and minds of employees, and repeat it continuously.
• My point is this: For a strategy to be supported and acted upon, it has to live in the hearts and minds of employees. We must get rid of the notion that the final product of a strategy is a document. The documentation of a strategy is a vital discipline, but it is the plat- form for strategic leadership, not the end point.
• Moreover, a sterile PowerPoint presentation of that document is unlikely to move an organization to action. We need to think of a strategy as a leadership story.

What Is Leadership?

• ‘‘A leader is someone who is able, through persuasion and personal example, to change the thoughts, feelings, and behaviors of those whom he seeks to lead.
• It reminds us that leaders move people to action both through their words and the example they set.
• effective leaders don’t just seek to change the behavior of others; that gets you nothing more than compliance.
• It is the combination of thoughts, feelings, and behaviors that produces commitment. And the difference between compliance and commitment is the bridge between doing and excelling.
• Three crucial elements:
• How people think
• How people feel
• How people behave

Chapter 9: Execute: Implementing and Experimenting in the Strategic Learning Cycle

• Strategy creation and strategy implementation are mutually interdependent. The one can- not work without the other.
• If all of the components of the Strategic Learning process are in place, then this cohesion will help you to execute your plan rapidly and successfully.

Learning through experimentation:

• Great execution is not just about doing. It is also about learning from what you do, so you keep doing it better.
• The gap between doing and excelling is a learning gap. It is about learning your way to excellence.
• We can’t figure out everything that will and won’t work through pure analysis or market research.
• A hypothesis is a good starting point, but then we often need a proving ground of some kind — for example, to determine the optimal price point, customers’ response to different product features or what it takes to succeed in a new market.
• Strategic choices are all about risk and probability. Just because you make a strategic choice doesn’t mean you can’t say, ‘‘This is the strategy we’re going to follow. We had to make a choice and we made it according to our best judgment. However, one of the alter- native choices also looked promising. So while we’re going to go full steam ahead on implementing our chosen strategy, we’ll explore that other possibility through a controlled experiment in a small area, see what we learn, and then scale up those lessons.’’
• A readiness to experiment, to learn from the results, and to adjust your strategy accordingly is a hallmark of adaptive organisations.

Experiential learning: The After-Action review

Learning from experiments has three basic components:

1. conducting the experiment,
2. studying the success or failure of the experiment,
3. and transferring the lessons learned throughout the organization

• Many companies are stuck in the plan/act mode and de- vote little time to reflection, analysis, and self-education.
• In this process of action learning, the after-action review (AAR) is a key component. An AAR is usually conducted immediately after a military engagement (simulated or real) in order to drive out les- sons learned as the basis for continuous improvement.
• An AAR typically focusses on 4 questions:
• What was the intent?
• What was the intended strategy at the time the action started?What role was supposed to be played by each unit? What was the desired outcome and how was it supposed to be achieved?
• What actually happened?
• In Army parlance, what was the ‘‘ground truth,’’ the actual events as they played out in the heat of battle, with all the misunderstanding, disruption, and confusion that inevitably occur when two armies clash?
• Why did it happen?
• This is the root-cause analysis. How did the commanders’ intent, the adversaries’ actions, changes in the environment, and the decisions of individuals combine to produce a specific set of outcomes?
• How can we do better ?
• What lessons can be learned from the events of this action that will enable Army units in similar fu- ture actions to carry out their missions in such a way as to more closely achieve the commanders’ intent?
• Consider holding an AAR in the aftermath of any key event, such as:
• A major new-product launch or market test
• The opening of a new manufacturing facility, retail outlet, or website
• A corporate reorganization, merger, or spin-off
• An external or internal crisis or turning point, such as an un- expected public relations challenge

Strategic Learning 365 Days a Year

• The lessons learned from experimentation and implementation feed directly back into the Situation Analysis.
• The process of discovery and renewal should never stop. In- stead, take deliberate steps to make the Strategic Learning method an active part of your business culture, so that the cycle of Learn, Focus, Align, and Execute is constantly at work, helping your orga- nization adapt to the ever-changing world in which it operates.

PART 3: INTEGRATING STRATEGY AND LEADERSHIP

Chapter 10: Leading Through Crisis

Chapter 11: Becoming an Integrated Leader

• Strategy is an inseparable part of leadership.
• a strategy, no matter how brilliant, will take an organization nowhere without the leadership capability to mobilize the commitment and creative energy of its people.
• The three domains of leadership:
• Intrapersonal leadership
• Intrapersonal leadership is about being firmly anchored in who you are and what you stand for.
• It’s about being clear on your values and consistently applying these to guide your life and your deci- sions. In the final analysis, it is about being genuine.
• Successful leadership of self involves:
• ! A deep sense of self-knowledge.
• ! A set of morally sound values that clearly define who you are. ! The preparedness to stand up for what you believe in.
• Self-control combined with optimism.
• These elements establish authenticity and moral character.
• Commitment to a cause larger than yourself.
• Strategic leadership
• The essential role of strategic leadership is to provide a clear sense of direction that will enable an organization, its people, and its stakeholders to prosper.
• Strategic leadership involves:
• Making sense of the changing environment.
• Using these insights to determine where to compete, how to win, and what priorities to pursue.
• Applying the right disciplines for effective implementation.
• Ensuring the organization is financially sound.
• Building the organization’s capacity for change and renewal.
• Interpersonal leadership
• Involves the ability to win hearts and minds of others
• Mobilizing collective effort in support of an organization’s strat- egy has always required strong skills in motivation, team building, and persuasion.
• The key to success is the ability to influence others without formal authority — peers, subordinates, and superi- ors. Interpersonal leadership encompasses:
• Translating your strategy into a simple, compelling leader- ship message.
• Fostering collaboration and teamwork.
• Showing appreciation for the perspectives, feelings, and concerns of others.
• Overcoming resistance and inspiring commitment.
• Creating a high-performance culture based on shared values and a common purpose.
• Leadership effectiveness is achieved when all three domains are integrated.

The Quest for Self-Knowledge

• A good leader is what you are is what you show, without pretenses.
• Deep self-knowledge is a gift you give yourself. It is an inner journey, a lifelong quest to define your values that no one else can undertake for you. The reward is authenticity.
• our life’s journey is the sum of the choices we make
• The most important choice we make is choosing the principles by which we will choose our actions. Being authentic is when our principles and our deeds are totally consistent.
• There is great benefit in doing the necessary self-examination to make our values explicit.
• We cannot hope to explain our values to others unless we have first explained them to ourselves.
• We are human, of course, and we will sometimes fall short of the values we choose to live by. But our learning and growth come from knowing where we fell short.
• Between stimu- lus and response, there is a space. In that space is our power to choose our response. In our response lies our growth and freedom.

Applying Strategic Learning to Yourself

• The development of ourselves as integrated leaders requires a pro- cess of lifelong learning and growth.
• The four steps of Strategic Learning can be translated into a per- sonal Leadership Development Cycle:
• Learn
• Focus
• Align
• Execute

CONCLUSION: The Five Cs: Choices, Clarity, Change, Courage, and Compassion

• Learning is a competitive pursuit. Sensing patterns and trends earlier and more clearly than competitors produces a crucial advan- tage. It is the gateway to opportunity.
• But insight must lead to action. A strategy must produce a very specific output that represents that call to focused collective effort.
• In a world where customers and investors have choices, the goal of an organization is to win the competition for value creation — customer value and economic value.
• Thus, the key output of a strategy is a Winning Proposition: what an organization will do differently or better than its competitors to deliver greater value to its custom- ers and superior financial returns for the enterprise.
• Without a clearly defined Winning Proposition (not a mere Value Proposition), an organization cannot claim to have a strategy.
• But in an ever-changing environment, winning once is not enough. To survive and thrive, an organization must go on winning.
• To mix strategy and planning together in one process almost always shortchanges strategy and undermines an or- ganization’s ability to think and function strategically.
• There is an outdated idea that strategy is something created at the top of an organization and that everyone else’s job is simply compliance.
• Every leader in the system must start with a clear line of sight to the organization’s overall vision and strategy, and then translate that into an aligned Winning Proposition and Key Priorities within his or her own domain of responsibility.
• We should get rid of the no- tion of a ‘‘cost center.’’ Every subgroup in an organization should function as a ‘‘value center,’’ with a Winning Proposition and Key Priorities that support the total effort.

The 5 Cs;

• Choices: Success comes from the ability to focus on the few things that matter most. Maximum power is achieved by focus multiplied by compounding. When you choose something, you have to give us something. The choices that will determine your destiny are deciding where you will compete, what you will offer your intended customers, and how you will win the competition for value creation. These choices represent the heart of your strategy. Choice-making involves sacrifice. competi- tive rivalry begins with the battle for superior insights.
• Clarity: Complexity paralyses an organization. In a turbulent and confusing world, a crucial leadership competency is the ability to simplify, to strip things down to their simple essence so they can be grasped and acted on by everyone in the enterprise. To galvanize an orga- nization, that strategy must be translated into a compelling leader- ship message that wins the hearts and minds of employees.Human beings are engaged and motivated through stories, metaphors, and pictures that enliven their imagination. Great leaders are great storytellers. For a message to be understood and acted on, it must be endlessly repeated, and the leader must embody the message. Ultimate clarity comes from providing meaning to everyday tasks. ‘‘People will do almost any what if you give them a good why.’’ Effective leaders provide a vivid description of ‘‘the cathedral’’ that everyone is helping to build.
• Change: The long-term success of organizations will depend on their ability to sense and rapidly respond to change on a continuous basis. Doing that better than competitors is the only sustainable competi- tive advantage available to us. The biggest test of leadership is to sense when change is necessary, and then success- fully convert resistance into active support for the change that is needed.
• Courage: Leadership requires courage: the courage to confront reality and make tough choices; to admit mistakes and learn from them; to lead change in the face of resistance; to tell the truth when it is un- palatable; to do the right thing when it is more profitable not to; to stand up for principle above expediency. Courageous leaders are optimistic, and they spark enthusiasm in others. They are committed to a cause greater than themselves. For them, leading is not about power. It is about service. They also have the humility to understand that they achieve nothing on their own
• Compassion: Successful leaders possess empathy. They are sensitive to the needs, concerns, and expectations of their people. They are reso- lutely fair. They embrace diversity. They unfailingly preserve the dignity and self-respect of everyone on the team, as well as those whom they must ask to leave the organization.

Two things have stood out clearly:

1. The level of success is determined by the commitment of the leaders in the organization.
2. The second is the huge payoff of deliberate practice. We cannot become great at something by doing it once. The first effort will never be our best, and will take us longer to complete. Just like champion athletes, organizations get better and faster at an activity through training and repetition. Closing the doing/excelling gap means constantly learning your way to greater and greater success.