Strategic Learning: An Interview with Professor Willie Pietersen
Creating and implementing strategy as a dynamic process for a changing world.
We are in the eye of the storm of massive disruption and there is a clear recognition that the status quo cannot be maintained in this turbulent and ever-changing environment. How do we evolve our strategy to cope with a disruptive future, scientific revolutions, unanticipated events and challenges? To survive, we have to embrace change. To thrive, we have to be the change.
Willie Pietersen, Professor of the Practice of Management, Faculty Member of Columbia Business School Executive Education, author of Strategic Learning: How to Be Smarter Than Your Competition and Turn Key Insights into Competitive Advantage, has great insights in the matter. We met last year during a corporate training program he supervised and I had a chance to learn his Strategic Learning framework and vision, to discuss with him at length about the impact of new technologies on our lives/businesses, future of humanity and importance of ethics. Willie was also the first person to encourage me to write, the first person who read my articles and gave constructive feedback. It is my duty and honor to share here a snippet of his immense knowledge, expertise and wisdom.
You write and teach extensively about strategy. What is strategy and whose responsibility it is in a corporate environment?
“That’s a key question actually because before we can function strategically, we must first be able to think strategically, understand deeply the underlying concepts and only then can we design the tools to harness those concepts. The interesting thing is strategy is a very important component of effective leadership. There are 3 basic components of effective leadership: 1. Leadership of Self, being deeply self-aware, being grounded on a sound set of values, being totally authentic and transparent as a leader. 2. Strategic Leadership, being able to give a clear direction and well-defined priorities for the organization to lead it forward. 3. Interpersonal Leadership, bringing out the best in others. These 3 elements work strongly together, none of them can work in isolation. When they do work synergistically together and we are able integrate them we become truly integrated leaders. Strategy is a fundamentally important part of that leadership structure.
Unfortunately, strategy is widely misunderstood and therefore misapplied. That’s not really good piece of news. There is some global research in large number of respondents that shows that only one-third of employees in typical organizations truly understand their company strategy and only one-third are fully engaged with what the organization is trying to do. Those two things are linked. The other finding is that in high engagement organizations in top quartile in engagement, level of performance is significantly higher, level of profit is 21% higher on average. Employees can only feel fully engaged if they totally understand and committed to organization’s strategy. In terms of understanding what it is, I think we need to break it down to its simple essence which is an essential starting point for thinking strategically, and everything flows from this point.
The key starting point is the reality of limited resources, and yet if we don’t really internalize that reality, we get derailed in our thinking. It means that we need make choices in terms of how we will mobilize our scarce resources for competitive advantage. That’s essentially what strategy is, it is about making choices in pursuit of competitive advantage. That only happens when we offer superior value to customers that we seek to serve.
When we talk about making choices, there are actually 3 questions that we need to be able to answer: 1. Where will we compete and what is our aim? We have to determine our arena(s) of competition and put a fence around it. 2. How we will win the competition for value creation in that chosen arena? 3. What will be the key priorities for success? Everything an organization does cascades from the answers to those 3 questions as a derived set of choices. When we ask the question “Whose job it is to create the strategy?”, the answer we must give is it is everybody’s job, at every level, every function, every region, every business unit. That’s the way I think about strategy in a very simple way.”
How can organizations achieve competitive advantage in this ever-changing world?
“The world is dynamic and full of disruption. The old, static methods of creating strategy in a dynamic environment are no longer fit for purpose at all. There is a fundamental reality that I think we must internalize: sustainable competitive advantage -a buzz word, kind of the ultimate goal- in a dynamic and fast changing world cannot rest for long on a particular product or business model as these things are quickly overtaken by events. The very big mindset shift that we need to adopt is the understanding that sustainable competitive advantage is not a product, nor a business model, it is an organizational capability. We must build an adaptive enterprise able to constantly renew itself through learning.
It is that understanding that helped me to create “strategic learning process”. It is a set of tools, a framework that represents a shift of gear from strategy as planning which is the old mindset to strategy as learning which is the imperative for being adaptive. It consists of 4 steps that move in a cycle.
Step 1: LEARN by doing a situation analysis of the external environment, customers and our own realities & develop a set of insights about these.
Step 2: FOCUS by using those insights to make best possible choices about those 3 questions (where we will compete, how we will win, what will be our priorities).
Step 3: ALIGN the measures & rewards, structure & process, culture and competencies of our people.
Step 4: EXECUTE, implement faster and better than our competitors, keep experimenting and learning. And then this learning goes back to Step 1, the starting point, as the environment is shifting hence we can’t stop learning.
The idea is to use this as a formal process, embed that thinking and set of practices within the organization. The situation analysis, which is the essential starting point, forces us to think “outside-in”. As military likes to say “intelligence precedes operations”, so sequence matters a lot. In going through these steps, understand that they are interrelated as a holistic system of learning and re-learning. In many companies this has become a formal process already and it seems to work well if leaders make it work. There is no process that is going to lead you to success on its own like a wind-up mouse running off on its own. No process is a magic bullet on its own. The magic bullet is leadership effectiveness, which means not just following the process mechanically, but appling the underlying principles that inspired the process in the first place.
I would like to emphasize that strategy is about winning, not just about competing or participating. I am not a fan of the phrase “value proposition” because it leaves out the biggest question of all: How much value? Value is a relative term, like the temperature, it is not an absolute. We need a higher bar than a value proposition, we need a “winning proposition” which defines the margin of difference in the value that you will create; that gives your customers a compelling reason to choose you. It is based on a fundamental truth: the hallmark of a customer is to have choices. If they don’t have choices, they are not customers, they are hostages. They don’t wake up in the morning thinking they owe you something, you owe them something! Hence the measurable margin of difference in the value that you create, the compelling reason you give them to choose you is your winning proposition. That’s my take on sustainable competitive advantage. But winning once is not enough, you have to go on winning, through learning and adaptation.”
How do we build this kind of thinking into the DNA of corporations?
“Strategy is a military concept. A great thought leader on strategy Carl von Clausewitz, a Prussian general who fought against Napoleon, wrote the definitive book between 1832 and 1835 on strategy called “On War”. I don’t like war but that’s the origin of strategy and all the great principles of strategy were enunciated there. Warfare is a blood sport, military wouldn’t mind occupying the enemies’ territory or decapitating their leaders and so on. In the business world, strategy is not a blood sport, you don’t win by destroying your enemies, you win by scoring more points for your customers than your competitors do. All the other aspects of strategy are applicable in business world.
We talked about strategic learning, it is very important to have a key process but being adaptive and thinking strategically cannot rest just on one process, strategy can’t just be seasonal. When it comes to “planning time” we suddenly start talking about customers, competitors, industry trends, and our own realities, we develop a strategy and then we turn the lights out because it is no longer strategy season! It is an ongoing process. Clausewitz emphasizes that in the military, strategy is a process of ongoing assessment and reassessment. The brutal logic is the fact that the external environment won’t stop changing, so you dare not stop learning! I advocate the following: always have small teams working on situation analyses for an ongoing assessment and reassessment, a team looking at customers and stakeholders doing a hierarchy of needs analysis, a team working on competitor analyses, a team analyzing industry trends; all teams always bringing insights into play as a habit of thought in performance meetings. Another thing I advocate is going on quarterly retreats away from the office: getting away from the urgent to think about the important. Another idea is to do after-action reviews, after each major endeavor to examine what worked, what didn’t work, why and then disseminate.
A key cultural aspect is how we deal with mistake making.
It is an inevitable result of risk taking. We urge our organizations to be prudent risk takers and that means there will be a certain number of mistakes. It is like a coin: one side says risk taking, the other side says mistake making. Being good at risk taking seems to rest on how good you are on dealing with mistake making. There are two categories:
- Dumb mistakes, when you repeat your own mistake or somebody else’s mistake, betting disproportionately more than the organization can afford to lose, acting without thinking deeply enough…
- The remainder are smart mistakes, provided that the value of the learning is bigger than the cost of the mistake.
If that’s the philosophy of an organization, it moves the emphasis away from blaming to learning. That’s an essential aspect of being an adaptive system. An industry that’s brilliant in doing this is the airline industry. Every time there is a plane crash, aviation gets safer because they do the root cause analysis very rapidly and disseminate the learning across the entire global aviation system. We can all learn from them, if you look at the graph of airline safety it is a spectacular story of continuous improvement. That’s the way we should deal with mistake making.”
You mentioned about “outside-in thinking” and also wrote in your book about “marketing myopia”. What do they mean exactly?
“Our nature is to think inside-out. Sociologists have done research on content of informal conversations and 80% of them involve inside-out thinking; they are about what’s happening internally in our own family, society, company as opposed to what’s going on externally. It is a survival matter to know who is who, who can I trust…
In business world, we need to understand that success occurs outside the boundaries of our organization, not inside. Inside is where we mobilize our resources to compete well outside. The ability to think outside-in is essential, yet it is an unnatural act. It is astonishing to me that, although we understand that intellectually, so often the conversation quickly becomes about what we want to do. That’s a terrible starting point for your strategy! The world doesn’t care what you want to do, the world only cares what it gets. Starting point is your customers and their needs, what are your competitors offering them, how can you create superior value? It is more easily said than done.
As leaders we need to be role models. Samuel J. Palmisano, former president and CEO of IBM, said that every executive in IBM should be able to answer 4 questions in every conversation they have, which stem from outside-in thinking: 1. Why should out customers choose to do business with us? 2. Why should investors choose to give us their money? 3. Why should employees seek to work in our organizations? 4. Why should communities welcome us in their midst? These questions touch on 4 critical stakeholders, on the importance of dealing with their needs in an interrelated effort. It introduces an intellectual discipline of thinking strategically, as emphasized by Clausewitz.
Marketing myopia is related to that. There is a wonderful article written way back in 1960 by Theodore Levitt. The ideas he put forward are still very relevant today. He wrote that you don’t sell products, you sell benefits. He said for example that the railroad companies failed because they saw themselves being in the railroad business as opposed to the transportation business. A railroad is just a means to an end for conveying benefits to customers. Customers don’t buy features, they buy benefits, they are looking for solutions to their problems. Therefore, we have to think outside-in.
Let’s take Amazon for instance and their retail business. What’s the benefit they are offering? As Jeff Bezos pointed out: Amazon makes buying things easy with great prices, very fast and convenient delivery. We forget the importance of service model and customer experience. Another example about selling benefits is Hallmark cards’ winning proposition which reads like this: “We help people connect with one another and give voice to their feelings”. That’s the benefit they offer, the card is simply a vehicle to offer that benefit. That’s another kind of mind-shift we need to internalize.
Kodak was so in love with their films that they couldn’t catch up with the benefits of digital photography. General Motors failed spectacularly. In the early 1980s they had a market share of 52% of the US auto market, today it is only about 18%. They went down progressively. There was nothing wrong with their intellectual capabilities but they became inward looking and political blaming it on the unions. They didn’t talk about their customers’ needs, they focused on their costs. We know why they failed, it is no longer a debate: Inside-out thinking.
You need to think outside-in & understand that you sell benefits, not just products. Your benefit is competing against that of competitors’. The margin of difference in the benefit you offer will help you win. Don’t be a make and sell organization, be a sense and respond organization.”
In the context of limited resources, we need to make choices and prioritize. What does this entail?
“Choice making sounds very simple and straightforward, doesn’t it? Let’s step back for a minute. Albert Camus said ‘Life is the sum of all your choices’. Same is true of organizations. We make our choices and at the end of the day our choices turn around and make us. Now, what is a choice? Useful answer is: choice is not a choice until you determined what you will give up. Choice is an act of sacrifice. When you have limited resources, you are working with a zero-sum game. Every additional thing you do subtracts energy and effort from everything else you do.
Nobody has the luxury of unlimited resources. Steve Jobs was really very good at this. He used to take his top 100 employees away from the office to brainstorm on potential areas of innovation. Team would come back with a lot enthusiasm and a list of 10 projects. At this point, most people would be tempted to try to tackle all ten. But Jobs knew that this would merely dilute the company’s impact. After the brainstorming, Jobs did something that many others would consider ruthless: he cut off the bottom seven things. He declared the ONLY things that Apple was going to focus on and put all its energy & resources were those top three priorities. Deciding what we will not do is a very hard thing. The vast majority of inputs have a minor effect on outputs. As leaders, we need to define those few things that make the biggest impact and prioritize them.”
You are coaching CEOs and senior management in various industries around the world. What are the biggest challenges that they are facing? What are the most powerful ideas that will drive success in this disruptive world?
“I offer perspective and guidance, I don’t claim to have all the right answers. I think we should be led by asking the right questions. I offer a point of view in all humility. I am very convinced that these ground rules mentioned previously are certainly important. What are the challenges we face? Yes, the world is changing, but more importantly, the nature of change in changing. World has become much more disruptive. Disruption means that the old structures are being destroyed, old rules of success no longer work. We have to constantly reinvent what success looks like. Peter Drucker said: in times of turbulence the biggest danger is to act with yesterday’s logic.
In a market environment of that kind, we need to: 1. Create a learning organization and infuse that in your processes, your structure and in the way you lead. We need to think in Darwinian terms, adapt or die. Adaptation in human systems comes from learning; not from accidents. 2. Practice outside-in thinking. 3. Practice customer empathy. It is different from customer centricity. See and experience the world through the eyes of the customer. 4. Simplify. We hear all these terms like AI, quantum computing, big data etc. Most people don’t even really know what they mean. We need to understand the benefits and the greater value they create. They are vehicles for a greater benefit. We need to simplify them and explain them to our people. Complexity is your enemy. Complexity paralyzes, simplicity empowers, energizes. 5. Unify your people with a compelling leadership message. Don’t just look at your strategy as a document. People don’t follow documents, they follow people and ideas. The bigger the change you are embarking on, the more important it becomes to have a powerful narrative that binds people together. We run two large systems as leaders: a social system & an economic system. If one of those underperforms, it disables the other one. We so often forget the social system which is energized through storytelling, that gives us meaning in what we do. We are not human beings on a spiritual journey, we are spiritual beings on a human journey.
Thank you, Willie!
Ezgi Tasdemir, PhD is a Novartis Oncology employee. This article is created by Ezgi Tasdemir. Views, analysis, and perspectives do not necessarily represent the views or opinions of Novartis or any other company or organization. The author does not receive any funding or support from Novartis or any other pharmaceutical/non-pharmaceutical company for this blog.
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