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Long-Range Strategic Thinking Ability: Why CEOs Must Have It
A study by world-renowned management thinkers Professor Gary Hamel and CK Prahalad has noted that in most organisations, less than 3% – 5% of executive time was devoted to looking outwards and developing foresight. Instead they recommend that 20% – 30% of executive time must be devoted to formulating a strategic view of the future
The Board-CEO strategy dilemma
As a pure management science, long-range thinking is one of the most difficult skills to test and verify in both practicing CEO’s and applicants for the top job. The most trusted IQ and personality tests that aspirant executives are put through hardly reveal any of the critical dimensions of a long-range thinker, let alone guarantee that the ‘A’ candidate will be able to look after the long-term welfare of the organisation. It is hardly surprising therefore that the majority of Board-CEO fallouts invariably site differences on long-term strategic direction as the main bone of contention.
Even for the most astute recruiter, predicting the probability of strategic naivety for a CEO prospect is, at best, a guessing game. Once appointed, the new CEO is presided over by a board whose long-range view of any business is encumbered by its limited understanding of the organisation’s industry and changing dynamics.
CEO’s therefore must champion the insight mining cause to gather intelligence on the industry, competitors and markets that the board needs in order to develop enough strategic foresight. Reality however could not be further from the truth. A study by world-renowned management thinkers Professor Gary Hamel and CK Prahalad, noted that in most organisations, less than 3-5% of executive time was devoted to looking outwards and developing foresight.
Instead they recommend that 20-30% of executive time must be devoted to formulating a strategic view of the future. A further study by Robert Kaplan of the Balanced Scorecard fame reveals that more than 80% of executives spend less than 1 hour a month on strategy discussion. Astonishingly, a staggering 50% spend no time at all!
Lack of strategic insight therefore relegates boards to reviewing thick board packs limited to conformance monitoring aspects around governance and compliance. The board-executive structure of most organisations therefore is at its weakest when it comes to instigating the long-term strategic thinking debate. Who asks the tough questions and who provides the answers? Who proposes and who provides the critique between the Board and the executive committee?
‘Strategic Thinking’ is every leader’s business
The long-range strategic thinking role of the CEO is not just limited to board level input, but is critical to instill to the rest of the executive and senior management teams as a way of doing business. Consider the following hypothetical example of a cruise ship operating company.
Much like the captain of a cruise ship is charged with its safety and adherence to its voyage plan, the CEO of the cruise company itself is charged with overall asset protection, appreciation and growth plans as agreed with shareholders. Further analysis of the two roles however, reveals a more complex set of variables that transform what are, seemingly, straightforward roles, into constant give-and-take decisions. They both need doses of the near-term view as well as a healthy big picture perspective; these two components are core to the practice of strategic thinking.
For the captain, he must constantly take trade-off decisions between providing passenger service with adequate stopover intervals in ports en route and keeping to the time schedule of the voyage. He must balance operational efficiency and safety of the voyage with the need to increase speeds between ports to stay on schedule: fuel consumption and safety risk will increase as a result. He must constantly monitor changeable whether conditions, wind speeds, the swell of the oceans and visibility changes and how all of this impacts voyage safety, economy and time schedule.
On-board the ship, guest services such as catering and entertainment are rendered in accordance to a fail-safe voyage schedule with low tolerances for error to guarantee the desired economic return when replicated over many voyages.
The captain’s job therefore is about constantly reviewing the long-range plan of the voyage while negotiating the short-term potential challenges facing it. Central to his performance is the need to optimize tactical changes to the voyage, sometimes enforced by safety requirements, with the need to maintaining the economic proposition of the cruise business itself. He must plan, forecast and anticipate the voyage as it unfolds in phases from port to port without neglecting the global perspective of the final destination and the economic payback to the larger business.
For the CEO, he has to wrestle with capital demands of maintaining a fleet in an environment where safety reputation is the heartland of the business. He must champion a culture of safety-based customer service that keeps the passengers coming back while maintaining the attractiveness of the company to investors, financiers and analysts.
He must have an ear to the ground, tracking industry product and market changes and regulatory environmental issues. Further, the CEO must oversee a balanced portfolio of cruise ships in terms of size and appointments suited for achieving operational and cost efficiencies in the company’s chosen routes. He must continuously track the competitive landscape and rivals’ customer value propositions, enhancing the overall customer experience and the need to balance all of that with costs and margin implications.
He must maintain cost leadership without sacrificing market share growth while staying clear of aggressive price wars that could ultimately undermine profitability. He must be awake to swings in consumer demand that global economic shocks can deal on the leisure travel industry and how his business is prepared for the worst case scenario should it materialise.
He must question the durability of the company’s current strategy and business model and the extent to which it can continue to serve the cruise company shareholders in the long-term. He must clarify the leadership, skills, organisational capabilities and culture that will be required to take the company to the next competitive phase.
Both the captain and the CEO have to make tactical decisions as well as long-range decisions without the certainty of adequate information. In this way, their jobs are similar in profile but not in scope. Each has a unique decision-making context, applying a unique repertoire of strategic thinking skills and competencies along the way while taking resource allocation decisions.
Strategic thinking is more art than an exact science
Championing an organisation’s long-term prospects is part science but mostly art. Business school executive education programs that are case study driven emphasize reasoning skills and analytical logic. They are big on teaching strategy as a process of extrapolating the future using a rear-view mirror approach where past experiential learning carries a big weighting in how executives perceive and judge the probable future of businesses and their performance.
Crucially though, the art of forecasting the future strategy of the company in this way is based on one fallible assumption: that the business model will remain the same. However, the global rate of change currently spares no organisation: unexpected market and competitor disruptive forces introduce a game changer in every industry by the day, with it business models are decaying at an alarming rate.
Arrival of digital photographic technology brought iconic Kodak to its knees as management procrastinated on changing a fast decaying business model even as the ground collapsed around the company. They chose incremental change when what was needed was breakthrough innovative thinking that would have kept pace with the rate of change in the industry, with dire consequences
Long-range strategic thinking is one of artistic dreaming and imagination in which the CEO must intuitively and courageously lead the business model rethink and rejuvenation. Pure science and rationality can then be applied to concretise and test the commercial strength of the business case; it simply cannot be the starting point.
The business-planning craze in many organisations has chocked companies of much needed idea generation and finding new sources of future value that strategic thinking can deliver. Long-range strategic thinking is a game in controlled experimentation ignoring the operational results of the current business model because it is not an incremental management process.
Rather it focuses more on artistically imagining and describing a series of probable, ideal and hostile future scenarios to which the model company of the future must be matched. With every scenario, the model must be concrete enough for its operational and performance implications to be readily apparent.
The transition from short to long-term thinking
The resistance to long-range strategic thinking in most executives is reference to the practice as ‘the warm and fuzzy.’ Abstract art that requires imaginative and creative interpretation in a top gallery attracts the same ‘warm and fuzzy’ description from casual critics hence it has striking similarity to how long-term thinking is invariably perceived.
Making the transition from the concrete world of short-term scientific extrapolation in operational strategy to the warm and fuzzy artistic design of long-range corporate strategy is the biggest challenge facing most CEO’s and executives. Of necessity, taking short-term decisions entails reference to existing, tangible and visible set of data and information in a finite decision space.
The average executive team can achieve this with minimal pain. The long-range strategic decision-making exercise is a voyage into the unknown. It is a barely tangible world, with infinite variables and risks that only brave but artistically deep CEO’s are comfortable to flirt with. The real skill lies in fabricating that unknown future so well that it resembles a picture of reality despite it being a process riddled with uncertainty.
Every business must engage in long-range thinking because it is primarily the source of revitalization and continuous re-alignment of the business model. CEO’s of distinction not only invest copious amounts of time in artistic strategic design but also lead similarly minded management teams at every level whose core job is to keep re-inventing the business and finding new sources of competitiveness. No wonder that strategic thinking ability is singled out as the no.1 executive skill demanded by world-class companies, it is the essence of the CEO’s leadership role.