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Long-Range Strategic Thinking Ability: Why CEOs Must Have It

CEOs spend less time than they should on strategic thinking. Here’s how to think more strategically – more of the time.

Lizwe Nkala

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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.

Hands-on CEOs

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.

Lizwe Nkala is an influential corporate strategist working at executive and board levels of large corporations. He is the MD of Flamingo Moon Consulting and a founding partner of the Strategic Thinking Institute, where he coaches executives and presents tailored strategic thinking seminars and webinars, and provides strategic thinking tools and templates on a subscription basis for corporate clients. For more, visit www.flamingomoon.co.za

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Strategy

6 Questions You Should Be Asking When Coaching

Top athletes have coaches because they’re winners. Business leaders should be the same.

Nadine Todd

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Dr Marshall Goldsmith

Whether you’re a CEO looking for a mentor, coaching your management team, or structuring a coaching programme for your managers to implement, there are six questions that can help anyone get better at anything.

The expert

Dr Marshall Goldsmith is a best-selling author and world-renowned business educator and coach. He has coached top CEOs, including Alan Mulally, former President and CEO of Ford Motor Company.

The key to a successful coaching programme is simple dialogue and establishing responsibility. The person being coached must understand and agree that success lies in their hands. They must take responsibility for their actions.

Related: How Business Coaching Can Help You Achieve Your Goals

The method

Once every few months, have a direct coaching session. Ask (or answer for yourself) these six questions:

  1. Where are we going?
  2. Where are you going?
  3. What are you doing well?
  4. Do you have suggestions for my improvement?
  5. How can I help you?
  6. So you have suggestions for me?

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Strategy

4 Ways To Develop The Leaders You’ll Need In The Future

One of the most challenging aspects of leadership development is consistently and effectively identifying the next wave of leaders.

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One of the most challenging aspects of leadership development is consistently and effectively identifying the next wave of leaders.

It can be easy for those at the top to forget that eventually someone will have to take their place at the helm. And ignoring that fact has lead to issues with succession planning, unwanted turnover and other challenges in leadership development in many organisations.

2016 High Impact Leadership research from Bersin by Deloitte asked 2,422 HR and business leaders from around the world how well they believed they could discover new leadership talent. Just 35 percent of respondents said they were above average when it came to successfully identifying and developing leaders.

To understand why this is, consider the typical leadership development paradox. Traditionally, the first step is to choose who has leadership potential, then develop their skillset. Logically, however, this makes little sense.

How is it possible to identify effective leaders if employees have yet to receive any type of leadership development?

Here are four ways to properly identify better qualified candidates for leadership positions:

1Stop choosing potential leaders based on unrelated skills

Gallup’s 2015 State of the American Manager Report, which studied 2.5 million manager-led teams in 195 countries, found that the top two reasons employees are promoted to management positions are because they were successful in a non-managerial role or because of their tenure with the company. Neither of those criteria have any proven correlation with leadership skills or relevant experience.

Create a better means of measuring for true leadership potential. Look at the culture of the organisation and envision what it would look like for someone to lead by those values.

Also consider how successful leaders evolved over time in the organisation. Then use that information to make a list of recognisable traits to look for as signs of leadership potential.

2Broaden leadership development to more employees

People learn and grow at their own unique pace. Requiring that an employee reach a certain position or be with the company for a certain number of years before they’re offered leadership opportunities holds back those who might be ready for more responsibility now. Or even worse, it might push those who aren’t yet ready into leadership roles.

Instead, let leadership development be a company-wide initiative. This gives more people the chance to take the next step in their career. It also creates a larger pool of possible great leaders to draw from across the organisation.

3Track progress and growth

Track progress and growth

There’s no way of knowing who is ready to step up and lead unless development is monitored. Remember that this is a process. Employees need feedback from their mentors and coaches to know for certain what skills they’ve mastered as well as where there can still be improvements made.

Develop a way to assess progress for different leadership positions, and be clear with employees and coaches about what success would look like in different situations. For instance, explain what is expected of a first time project leader.

Get everyone on the same page about the developing leader’s responsibilities and how that should guide their team.

Then collect thorough feedback from all those involved. Ask the leadership candidate what challenges they faced as well as where they think they thrived. Pose the same questions to those they supervised and organisational mentors.

Over time, this will reveal patterns that make it easier to identify who is best suited for leadership in the long-term.

4Focus on continual leadership development

There is no such thing as too much experience. There is always more that can be learned. After leadership candidates have been identified, continue to nurture them. This keeps employees from feeling that they have plateaued, which is unfortunately common.

The 2014 Insigniam Middle Management Survey: Middle Management’s Critical Role In Saving Company Innovation looked at responses from 200 middle managers from around the world. It found that only 15 percent of managers believe they will ever be promoted to the next level of leadership at their company.

Whether intentionally or not, employees who have proven their leadership abilities are being told that their leadership journey is over – and this hurts both them and the organisation. Encourage a steady stream of highly trained and skilled leaders working their way up by demonstrating that there is no end to development.

In order to clearly see who the next wave of leaders is going to be, employees need to be given the chance to hone and exercise their skills.

That means redefining how leadership potential is identified and providing each employee with the chance to develop personally and professionally.

This article was originally posted here on Entrepreneur.com.

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Have You (Really) Put Your Business To The Test?

You should constantly test things in your business to see if they’re working. In that direction lies success.

Nicholas Haralambous

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There’s a pretty famous saying that people in business like to use: Always be closing, or ABC. It’s a very sales-driven concept that suggests that whatever you do, you should always be closing a sale.

I used to like that way of thinking: Drive your pipeline growth, work on the numbers and push the sales as hard as you can all the time.

That approach definitely works for certain types of businesses, but after a while it can be soul destroying work that leaves a business a bit hollow. So over the past few years I’ve been working on a tweaked methodology.

I call this method of building and selling: Always be testing or ABT.

Related: 3 Sure Fire Ways To Improve Efficiency And Find Your Business’s Productivity Sweet Spot

The concept is simple. You should constantly be testing things in your business to see if they’re working. If they are working, great, you can then start testing how to improve them. If they’re not working, you find out and can start testing fixes for the problem.

This applies to your team, your product, your day-to-day strategy for selling, customer acquisition and anything else you can think of.

Start testing yourself

The obsession with testing things started in my personal life. I was doing it without realising what I was doing. I started waking up 15 minutes earlier every month and after a while I was spritely and awake by 5:30am and walking my dogs or working while everyone else was asleep.

Then I stopped eating sugar for a while to see if I’d feel better. I did. That didn’t last but I then stopped drinking coffee to see if I’d sleep better. I did. So now I don’t drink caffeine of any kind after 3pm.

I found that I was constantly testing out everything that I did and tweaking my life accordingly. So one day I realised that this model would probably work in my business: Small, frequent tests with specific goals in mind to try to learn something new or verify something old.

Related: How You Can Make Those Sales When Nobody’s Buying (Yes It’s Do-able)

business-reporting-structure

Testing requires reporting

Setting up tests is not difficult. But tracking the results of the test requires preparation. Interestingly, when I moved Nic Harry from a pure e-commerce company into physical retail, I discovered how slow real world retailers have been to use technology to track changes they make in store.

With nicharry.com we have been able to test, tweak and track results for years. I have many tests and lots of data to pour through when I want information about a decision. I can make a change on the homepage and see if it leads to more transactions than the previous homepage tweak. If it works, great, if it doesn’t, I go back to the way it was.

I decided to take this type of thinking into our flagship store by treating each wall and window as a web page. We kept notes of which socks were on which walls and which socks sold better where in the store.

After a few months we had figured out which walls were the hotspots in the store. Then we started to move the socks around and see if we could influence who purchased what just by placing the socks in a different place.

This type of tiny testing environment helps me understand my stores, my team and me products with granular detail. However it wouldn’t be possible if my systems weren’t set up properly to help me track these changes.

Why test something that works?

People often ask me why they should test something that is clearly working. Well, what if one day your product stops selling and you don’t know why? What if your core revenue stream dries up over the course of a few months or years and you haven’t noticed?

Testing helps me to stay in front of my problems. I can think of a stand out example of a company that stopped testing and ended up losing: Blackberry. Do you remember them? I do, but not many people will in a year or two.

Related: 10 Brilliant Responses To The Customer Who Is ‘Just Looking’

It’s also worth remembering Kodak. Kodak was founded in 1888 and thrived for a century, literally. Then it stopped testing in the face of innovation all around the company and from within. In 2012 Kodak filed for bankruptcy protection. The ironic part of the Kodak story is that digital photography killed their business. Why is this ironic? Kodak developed the first digital camera in 1975 but didn’t test it in the market. They were worried it would eat into their existing business.

If only they had tested the product before they dropped it. Tests do not have to be large and complex. Implement systems that allow you to track the changes in your business whether online or offline. Then engage with your team about how they can help you to measure and manage the tests and then start with something small.

Testing for no reason is futile. It’s imperative to know what you’re testing and why. Once you’ve figured out your goals, start testing and never stop.

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