In this book, we have explored the essential paths and tasks inherent to sustaining corporate growth while creating value. In this final chapter, I turn to the individual’s role as a strategic leader and value creator. And let me be clear: what I write is not intended for only the most senior managers of large enterprises.
Arguably, the need for and the payoff from sound strategic thinking and strong strategic leadership may be greater for those leading small, emerging firms than for the CEOs of large corporations. The strategic genius of most great leaders—people like Walt Disney, Steve Jobs, or Sam Walton—did not emerge when they were czars of large corporate empires. Rather, it emerged while they were guiding fledgling businesses. Early on, they composed powerful corporate theories that enabled them to build these small entities into empires.
Moreover, strategic leadership is not merely important for those at the helm of corporations. Organizations that sustain value creation are both led by strategic leaders and filled with strategic leaders scattered across many areas and all levels of the organization. The capacity to sustain value creation is thus more than a powerful central theory formulated by a CEO perhaps long dead (although admittedly this really helps). They succeed because they are filled with strategic leaders skilled in:
• Assimilating and testing the broader corporate theory
and
• Developing and pursuing their own local theories of value, sometimes derived from the broader corporate theory, but frequently entirely novel
This novelty, as I have discussed, is essential to value creation. Regardless of position or place in the organization, great strategic leaders see and discover value-creating paths that others cannot. If your vision holds only what others see, you are redundant as a value creator, easily replaced. Your sight offers no unique value.
Not everyone thinks of leadership in terms of value creation. There is a huge body of literature on leadership that focuses on how to powerfully motivate and lead teams. Yet leading and motivating people is but one element on the critical path to value creation. If leadership is leading and motivating, then strategic leading demands the additional skill of deciding where to lead. A recent study claimed that this capacity to think and lead strategically was ten times more important to perceptions of effective leadership by peers, subordinates, and senior managers than all other leadership behaviors studied.1 Yet the idea of strategic thinking as the process of defining where to lead has been relatively ignored—and it merits considerably greater attention.
Strategic leaders consistently identify, evaluate, explore, and ultimately blaze new paths to value creation in whatever corner of the organization they influence. In this sense, strategic leaders are like Vikings, exploring and conquering new lands. As explorers, they have multiple roles. They are mapmakers, developing representations of uncharted territory; navigators, identifying promising paths for exploration; shipbuilders, constantly refining their vessels to increase exploration speed; and skilled sailors, quickly reaching targets through well-sequenced course corrections. To move beyond analogies, however, we could define strategic leaders as performing three key roles as follows:
• Composing powerful, value-creating theories that reveal paths to value creation
• Communicating and selling their theories to key constituents and resource holders
• Dynamically sequencing the attention and focus of those they lead to explore and build the value they envision
A leader who performs all these roles will succeed in motivating and directing others to perform as strategic leaders as well; in a large organization, mobilizing talent in this way enables the leader to shape repeated competitive advantages.
Composing Theories
In the world of entrepreneurship and leadership, much is written about the need for action—for rapid testing of ideas and products at a very early stage. In fact, the central message of the Lean Startup concept—the craze that has captured many managers’ imagination these days—is a message about fast action and quick pivots. It describes an approach to innovation built around the “scientific method” in which repeated experimentation continually shifts the trajectory of the enterprise.2
Seemingly forgotten in this version of the scientific method is the reality that breakthrough science has far more to do with the theoretical power guiding which experiments will be run than the execution speed of the labs. The message to go out and “do” has vast appeal, as most of us see ourselves as “doers” first, then thinkers. But to fuel significant value creation, additional thinking is needed far more than additional doing.
So what is it that great strategic thinkers think about? They construct theories of value that reveal problems, which if effectively solved will generate enormous value. These problems may be of many types: customer problems (perhaps an unmet need), production problems (perhaps a manufacturing bottleneck), or marketing problems (perhaps an off-target marketing message). Philosopher Karl Popper famously observed that “all life is problem solving.”3 I would perhaps rephrase: all life is problem finding and solving. This is certainly true in business.
Strategic leaders are above all great problem finders. They compose theories of value creation that identify novel and “valuable” problems to solve.4 Albert Einstein is reported to have said: “If I were given one hour to save the planet, I would spend fifty-nine minutes defining the problem and one minute resolving it.”5 Great strategic thinking—thinking that finds and clearly frames a valuable problem dramatically enhances the payoff from problem solving and ensures far more effective doing.
The first task of strategic leaders, therefore, is to assemble a theory that reveals problems that if solved will create value in their domain of influence or control. The bigger the problem revealed, the greater the opportunity for value creation. The best such theories reveal problems that are entirely unknown to others, perhaps unknown to even those who “possess” the problems. The rise of Howard Schultz and Starbucks is a familiar parable in business books. But for me the really interesting point about Howard Schultz is that he uncovered and then pushed a powerful theory of value creation long before he became a reluctant entrepreneur.
While in Milan for a trade show, Schultz visited and enjoyed Italian coffee bars. The experience led him to recognize a valuable problem: US consumers lack access to quality coffee and an attractive physical and social environment in which to consume it. While Schultz was not the first US visitor to appreciate Italian coffee bars, he was perhaps the first to act on a theory that some adaptation of this Italian model might solve a problem that US citizens didn’t know they had. When his employers, Starbucks founders, made it clear that they were uninterested in his theory and the central “problems” it revealed, Schultz struck out on his own—only to turn around and buy Starbucks from his former employers.
While the company naturally learned as it pursued experiments, an overall theory of value creation was implicitly in place early on. This theory informed all the experiments, revealing a sequence of subsidiary problems to be solved in product sourcing, store design and format, merchandising mix, store ownership (franchising versus wholly owned), incentives and control, customer education, and vertical integration.
In general, the more complex, novel, and valuable the initial problem identified, the more valuable it is to have a map or theory to guide its exploration. Simple problems require no map—as paths to solutions are rather transparent, and success is about winning the race to the top. On a complex terrain, however, those with a guiding theory of value creation see what others can’t, including paths to complete and valuable solutions. It was Steve Jobs’s unique theory about what consumers would value that revealed entirely new problems and previously unseen paths to solutions. The result was a completely novel trajectory of experiments. The difference between strategic successes and failures has far more to do with the quality of the theory that’s behind a company’s experiments than with the pace and number of the experiments. Sustaining value creation, by extension, requires better theories—not faster-paced pivots.
Selling the Theory
Unfortunately, the inherent novelty of valuable strategic thinking means that leaders need to persuade others to pursue the paths to value creation that they identify. Just as senior managers face a clear challenge in selling investors on their corporate theories—precisely those theories that hold the promise of delivering the greatest value—less senior strategic leaders face a parallel challenge. The most valuable strategic thinking both personally (in advancing a career) and organizationally (in advancing value creation) is novel, and novelty almost always confronts resistance. Ben Horowitz, cofounder of the venture capital firm Andreesen Horowitz, observes that those who build great companies are always “ridiculed along the way,” but argues: “If you are driven by social signals, you shouldn’t be an entrepreneur.”6 This is a valuable piece of wisdom for all strategic leaders, not merely entrepreneurs. For better or worse, strategic leaders must be thoroughly convinced themselves before trying to persuade others.
And the difficulty of selling a theory or persuading others of the validity of your strategic thought escalates exponentially with its novelty. Although Howard Schultz was a wildly successful entrepreneur, as an employee, he failed as a strategic leader in his attempts to persuade his superiors of the value of his thinking. It’s a familiar story, and often the failure to convince a current employer precipitates entrepreneurship. Although this is not necessarily a bad outcome for the new entrepreneur, it is a missed opportunity for the company—all the more so as the original theory behind the forced entrepreneurship very likely involved exploiting assets and capabilities the company already had. The strategic leader able to persuade an existing employer, therefore, is arguably more likely to succeed in making a theory real than a strategic leader forced to start more or less from scratch. And it’s not just the bosses that need convincing. Everyone the leader must work with—both inside and outside the corporation—will have to be sold on the idea.
After composing a theory of value creation, therefore, a key task is to craft compelling language that enables others to see what you see—clarity of expression and clear logic are critical to enrolling others. Research in psychology also highlights this point. For example, in cases in which minority groups have persuaded a hitherto indifferent majority, confidently and consistently articulated positions presented with the perception of being unbiased have more often succeeded than attempts to persuade through other ways and means.7 So although much has been written about the importance of garnering power and skillful politicking as vehicles for imposing your will and vision in an organization, more important is a powerful and valid conception of a path to value that you can persuasively articulate. Steve Jobs was no politician, as biographies attest, but he was masterful with language—language that he used to powerfully articulate his theories of value creation. A vivid metaphor can powerfully convey a unique idea or perspective, or a theory. In leading the team that generated the first complete product manifestation of his theory, the Macintosh, Jobs sometimes characterized the object of design as a Porsche, at others as a machine that looked “friendly.” This language painted a valuable image and provided general principles to guide the pattern of experiments that would ultimately result in this remarkable product.
The task of strategic leaders is to persuade others to pursue their novel path to value creation. Edicts are ineffective. As Larry Bossidy, former CEO of Allied Signal, put it: “The day when you could yell and scream and beat people into good performance is over. Today you have to appeal to them by helping them see how they can get from here to there, by establishing some credibility, and by giving them some reason to help to get there. Do all those things, and they’ll knock down doors.”8 If as discussed in this book, corporate theories should drive a wide-ranging set of decisions, involving the composition, investments, and structure of the corporation, it is critical that strategic leaders enable others to see what they see and be convinced of the vision’s merits.
Navigating Organizational Dynamics
As this book has made clear, powerful theories of value creation reveal myriad problems to solve, actions to pursue, and experiments to undertake. At the same time, serious cognitive, behavioral, and organizational constraints limit an firm’s capacity to attend to all paths to value creation simultaneously. Strategic leaders recognize that focusing attention on particular performance metrics and problems is far more effective in creating that value than drawing attention and focus to the vast array all at once. Strategic leadership is about prioritizing. It is about selecting the optimal current path, at any given time, to value creation.
A strategic leader, therefore, must be skillful in navigating the dynamics of organizational focus and attention. This involves having not only a clear sense of what the organization must do, but an even clearer of sense of timing—a sense of who to persuade to do what, when, and where. Strategic leaders steer an organization’s focus, using organizational levers and communication platforms to direct the exploratory, value-creating efforts of others. Recall Jack Welch’s two decades at the helm of GE. His successful leadership was a product of both his strategic vision and his remarkable knack for constantly shifting the focus and attention of the organization to explore new paths of value creation, pushing GE managers to constantly tackle new sets of problems. For a while, the focus was the competitive position and scale of business units, then it shifted to empowering employees to solve more local problems, then to global outreach, then to expanding service offerings, and then to a focus on quality and process improvement. Interspersed among these were a wide range of other initiatives. By shifting focus, Welch shifted the domain of the firm’s problem-finding and problem-solving efforts. The result was a remarkable path of value creation. In a similar vein, Michael Eisner’s brilliance during his first decade at Disney was his capacity to consistently push the organization to discover a succession of new value-creating investments consistent with the Disney theory.
One of the most powerful tools in shaping a company’s focus and attention is organizational design. Different designs are likely to encourage different approaches to problem finding and problem solving. For instance, as discussed in chapter 6, more centralized designs may focus attention on problems that promote efficiency and coordination, while more decentralized designs may fuel innovation. But organizational design is a difficult art, requiring the skillful management of trade-offs and paradoxes. There is no one design that will drive all of the desired value-generating behaviors. Moreover, once a company adopts a structure that highlights one set of problems, it often finds over time that the benefits from changing the structure and focus become increasingly large. It is up to the strategic leader to figure out the proper timing and scope of organizational change.
Many CEOs are one-trick ponies, able to push at most a single button with success. When that trajectory runs out of gas, or when the optimal path of value creation shifts, they are incapable of providing the requisite new focus or direction. Their tenure is generally short. Long-lived CEOs have both a broad vision and a capacity to dynamically navigate toward it, recognizing the limitation of any one path in realizing the full value their theory envisions. Strategic leaders throughout the organization are no different. They recognize their inability to pursue all at once the vast array of dimensions requisite for sustaining value creation. Instead, they lead by choosing today’s trajectory.
This book began with a description of the difficulty that organizations face in sustaining value creation. The need to relentlessly create value while exceeding investors’ expectations sets an enormously high bar. Regardless of your role, whether CEO or aspiring manager, your efforts alone will inevitably prove insufficient.
Stripped to its essentials, therefore, the challenge of strategic leadership is twofold: you have to have a big idea, then you must be able to inspire and motivate others to think strategically about how to realize that big idea. The more complex and unique the idea, the more valuable it is, but also the more you will need more than just your own brilliant strategic thinking or skilled problem finding and problem solving. To pursue a big idea, you will need to engage others in problem finding and problem solving alongside you. You need others engaged in strategic thinking and skillfully persuading others to engage. Succeed in this—thanks to a sound theory, well-articulated, and supported by your organizational decisions—and you will create a powerful virtuous dynamic: as people improve in confidence and clarity of expression, their own ability to persuade and motivate others increases.
The great German conductor Herbert von Karajan was a keen horseman, and he often liked to compare his profession with his sport. Conducting an orchestra, he once claimed, was like leading a horse over a hurdle: “You cannot jump the fence for them. You have to point them in the right direction.”9 The challenge, in other words, is getting the horse to jump the fence or the orchestra to play the music in just the right way. To do that, you need a personal vision about what the right way basically is—what needs to be done for a piece of music to sound “right.” You have to be able to explain your vision to the musicians in the orchestra, and you have to manage the rehearsals in ways that encourage the musicians to produce the sounds you seek.
As a strategic leader seeking to move your organization beyond competitive advantage—on to a trajectory of sustained value creation, your tasks are to be skilled composers and conductors, seeing value others cannot and then constantly orchestrating the composition of activities and assets across time, with proper tempo and dynamics. Succeed here, and investor applause will be resounding.