A CEO recently shared this thought with us, “Timing matters. When markets are being disrupted, you can arrive at the top just when much of your knowledge and experience is becoming irrelevant. These are not just interesting, but humbling times.”
Probe behind these words and there’s a fascinating insight into today’s highly dynamic, complex business landscape, and the associated leadership dilemmas facing all of us.
CONSIDERATION 1 – How we THINK about strategy:
As we’ll argue in this and future blogs, the challenge lies beyond developing leaders who can craft transformational concepts and vision statements. Often there is a fine line between vision and hallucination.
Strategy has traditionally been an exercise in competitive positioning with the starting questions being:-
- “given our industry and competitors how do we outperform them on price / performance”?
- “where to play, and how to win”?
But these are second order questions in markets where competitive changes are altering industry structures, boundaries and definitions – the “game” itself. Leaders need to know what game they have to play, not just which stadium to go to. There are no prizes for playing the wrong game at a more efficient level. Or put differently, not understanding that building a system to play world class “soccer” will be ineffective if the real contest is facing a mighty “US football” team playing by US football rules.
Competitive games can be altered and redefined by the players in the system, not just through exogenous forces. Therefore in industries which evolve like complex adaptive systems, even smart forecasting and quick reaction times can leave organizations in perpetual catch-up mode. Organizational speed of thought and action – so important to the modern HR capability agenda – is only beneficial if you’re directionally correct. There is no point in hastening organizational decline.
The healthcare industry gives us a great example of this. Healthcare is witnessing convergence of players from pharmaceuticals, informatics, technology diagnostics and genome sciences as the game shifts from curative to preventive systems. Leaders therefore need to develop robust “points of view”, not just forecasts, about industry futures and how to actually shape them.
As new competitive games emerge, rules-changing business models become the new innovation arena. The capacity to create and implant innovative value creation formulas – “the new competitive rules of the new game” – defines the value added of business leaders, and reflects their “strategic acumen”.
Given this context, the question for HR leaders then becomes how to position themselves alongside the business to “Think” collaboratively about strategy at the “formulation” stage. HR leaders who do this well are involved in early conversations with business leaders, holding up a “strategic mirror” which enables their business partners to apply a set of critical criteria to their strategy. The value of HR leaders comes not from providing market knowledge but a “strategic mirror test”. A later Blog will set out five key “strategic mirror questions”.
A key challenge for HR is “how can we design development systems to give leaders immersive, relevant experience in shaping market evolution and futures? How well do we understand strategic acumen, its components, and how to develop them?”
CONSIDERATION 2 – The TASK of Strategy:
Many CEOs stress their real strategic challenge is “execution”, which suggests by contrast that “formulation” is the easier part of strategy. This may have held true when market dynamics predominantly affected efficiency standards, and strategy was primarily about improving corporate performance metrics. Not in today’s world.
For many industries, late 20th Century global competition was mainly about reducing inefficiencies in the value chain. The task of strategy was taking the organization on a linear, sequential journey from clearly articulated Point A to Point B (like going from 2 sigma to 6 sigma in quality standards), implemented via defined systems and processes. Business leaders knew exactly where to go, how to describe and measure the end state, how long it would take, and how to get there. Strategy was structured, controlled and predictive. And easily communicated.
In a new game context, however, strategy is a journey of rapid iteration and less structured discovery. It is like doing a jigsaw puzzle where you don’t have a full picture at the start, and you don’t have all the pieces. This is exactly the dilemma faced by healthcare companies as the game changes from “curing” to “preventing”.
HR’s value and contribution is critical in this stage. Their role is to help co-create the strategy, pre-emptively creating new competitive capabilities, and minimizing risk, cost and time to the future. The challenge for HR is to avoid being positioned as purely part of the strategy execution process, providing talent and organization support for a “strategy” which in reality is often just a medium term operating plan, rather than a robust strategy for a new game landscape. HR professionals have so much more to offer than performance management capability and delivery. So how can HR leaders become genuine “strategic partners” by helping their business partners to stress test the adequacy of their strategies? This may involve re-defining what a “strategic partner” actually involves in a dynamic, complex world.
CONSIDERATION 3 – PREPARING THE ORGANIZATION for Strategy:
What’s causing the challenge with strategy and ensuring its effectiveness? One of the game-changing dynamics in modern competition is the force of convergence in multiple forms. Products, services, technologies, segments, knowledge, even industries themselves are being connected in unanticipated ways. This causes “pain to the brain” for leaders, since traditionally separate categories suddenly merge, and former definitional clarity is lost.
If, however, convergence is happening on the outside, companies need to enable convergence on the inside of organizations to capture game-changing opportunities. This challenge may require HR leaders to rethink what is meant by collaboration, and how to achieve it. Not all inter-divisional dialogue meets today’s collaborative requirements.
The typical organizational structure of autonomous businesses, geographies and functions can create strong disciplines of focus, accountability and control. But the problem is that it may leave the whole enterprise vulnerable to underleveraged value. Complex, dynamic markets are insensitive to our organizational boundaries.
So what happens if major game-changing opportunities span our defined organizational divides, and require leaders to forge new connections? Can we manage horizontally with the same discipline as we manage vertically, especially if performance metrics are based on performance within rather than across silos? If multiple types of market and technology convergence are some of the drivers of new game landscapes, organizations need a step change shift in how they manage “convergence on the inside”
To address this challenge requires a discipline of managed, innovative collaboration which focuses on enterprise-wide opportunities, and goes well beyond occasional ad hoc attempts at improving coordination or cooperation. Do HR leaders measure the loss of game changing, cross-divisional opportunities with the same attention to detail as failure to achieve divisional performance targets? What happens if the “path to top leadership” does not prioritize collaborative value creation as an element of executive talent?
This needs HR to focus on “internal governance” issues and tensions. The challenge is rarely solved by redesigning organization charts, although that remedy is so often the default option of executives who suffer from “chartitis” – the belief that executive performance is fundamentally linked to design of accountability and control systems. Complex behavioral challenges rarely have structural solutions. In a game-changing world we need to design organizations for value-creation not just administrative clarity.
The digital revolution has accelerated the emergence of micro-global companies. They challenge our view of size, resources and clear organizational design as the prerequisites of being global. Instagram had only an 18-month history, 13 employees but over 30 million customers when it was acquired by Facebook for $1 billion. Traditional global firms claim they have scale and scope (geographical coverage). The new game question is whether they have leverage and impact.
To conclude, if business leaders are having to rethink the meaning and measurement of classic business concepts such as competition, value creation, competitive advantage and market leadership in a new game world (more about this in Blog 2), what is the reciprocal response required of HR leaders? Which of the current HR policy fundamentals need a new game perspective in order for HR to be impactful strategic partners?
HR professionals rightly take pride in their knowledge of and capacity to install “best practice” procedures and processes. But what happens if “best practice” becomes “insufficient practice” for a disruptive world? Gordon’s late, great colleague and friend CK Prahalad used to emphasize the need to create “next practice” not just “best practice” agendas. What does that involve for HR leaders in the new global business system?
Audrey McGuckin consults with top CEOs and HR Executives to solve their toughest and most complex talent and leadership challenges. To connect with Audrey on how she can assist you and your organization, visit our contact page or message her directly at audrey@audreymcguckin.com.
Gordon Hewitt is one of the world’s most sought-after executive educators and advisors and has been on the faculty at the Ross School of Business, University of Michigan, for over two decades also consults and teaches on top corporate programmes at the Said Business School, University of Oxford. As a consultant, he has extensive experience for over 25 years of working at CEO and Board level with many global corporations message Gordon directly atdrghewitt@aol.com.