Discussion 1: Managers vs. Leaders

LEADERSHIP

Strategic Leadership: The Essential Skills by Paul J. H. Schoemaker , Steve Krupp and Samantha Howland

From the January–February 2013 Issue

T he storied British banker and financier Nathan Rothschild noted that

great fortunes are made when cannonballs fall in the harbor, not when

violins play in the ballroom. Rothschild understood that the more

unpredictable the environment, the greater the opportunity—if you have

the leadership skills to capitalize on it. Through research at the Wharton School

and at our consulting firm involving more than 20,000 executives to date, we have

identified six skills that, when mastered and used in concert, allow leaders to think

strategically and navigate the unknown effectively: the abilities to anticipate,

challenge, interpret, decide, align, and learn. Each has received attention in the

leadership literature, but usually in isolation and seldom in the special context of

high stakes and deep uncertainty that can make or break both companies and

careers. This article describes the six skills in detail. An adaptive strategic leader—

someone who is both resolute and flexible, persistent in the face of setbacks but

also able to react strategically to environmental shifts—has learned to apply all six

at once.

Do you have the right networks to help you see opportunities before competitors

do? Are you comfortable challenging your own and others’ assumptions? Can you

get a diverse group to buy in to a common vision? Do you learn from mistakes? By

answering questions like these, you’ll get a clear view of your abilities in each area.

The self-test at this article’s end (and the more detailed test available at

hbrsurvey.decisionstrat.com) will help you gauge your strengths and weaknesses,

address deficits, and optimize your full portfolio of leadership skills.

Let’s look at each skill in turn.

Anticipate Most organizations and leaders are poor at detecting ambiguous threats and

opportunities on the periphery of their business. Coors executives, famously, were

late seeing the trend toward low-carb beers. Lego management missed the

electronic revolution in toys and gaming. Strategic leaders, in contrast, are

constantly vigilant, honing their ability to anticipate by scanning the environment

for signals of change.

We worked with a CEO named Mike who had built his reputation as a turnaround

wizard in heavy manufacturing businesses. He was terrific at reacting to crises and

fixing them. After he’d worked his magic in one particular crisis, Mike’s company

enjoyed a bump in growth, fueled in part by an up cycle. But after the cycle had

peaked, demand abruptly softened, catching Mike off guard. More of the same in a

down market wasn’t going to work. Mike needed to consider various scenarios and

gather better information from diverse sources in order to anticipate where his

industry was headed.

We showed Mike and his team members how to pick up weak signals from both

inside and outside the organization. They worked to develop broader networks and

to take the perspective of customers, competitors, and partners. More alert to

opportunities outside the core business, Mike and the team diversified their

product portfolio and acquired a company in an adjacent market where demand

was higher and less susceptible to boom-and-bust cycles.

To improve your ability to anticipate:

Talk to your customers, suppliers, and other partners to understand their

challenges.

Conduct market research and business simulations to understand competitors’

perspectives, gauge their likely reactions to new initiatives or products, and predict

potential disruptive offerings.

Use scenario planning to imagine various futures and prepare for the unexpected.

Look at a fast-growing rival and examine actions it has taken that puzzle you.

List customers you have lost recently and try to figure out why.

Attend conferences and events in other industries or functions.

Challenge Strategic thinkers question the status quo. They challenge their own and others’

assumptions and encourage divergent points of view. Only after careful reflection

and examination of a problem through many lenses do they take decisive action.

This requires patience, courage, and an open mind.

Consider Bob, a division president in an energy company we worked with, who

was set in his ways and avoided risky or messy situations. When faced with a tough

problem—for example, how to consolidate business units to streamline costs—he

would gather all available information and retreat alone into his office. His

solutions, although well thought out, were predictable and rarely innovative. In the

consolidation case he focused entirely on two similar and underperforming

businesses rather than considering a bolder reorganization that would streamline

activities across the entire division. When he needed outside advice, he turned to a

few seasoned consultants in one trusted firm who suggested tried-and-true

solutions instead of questioning basic industry assumptions.

Through coaching, we helped Bob learn how to invite different (even opposing)

views to challenge his own thinking and that of his advisers. This was

uncomfortable for him at first, but then he began to see that he could generate

fresh solutions to stale problems and improve his strategic decision making. For

the organizational streamlining he even assigned a colleague to play devil’s

advocate—an approach that yielded a hybrid solution: Certain emerging market

teams were allowed to keep their local HR and finance support for a transitional

period while tapping the fully centralized model for IT and legal support.

To improve your ability to challenge:

Focus on the root causes of a problem rather than the symptoms. Apply the “five

whys” of Sakichi Toyoda, Toyota’s founder. (“Product returns increased 5% this

month.” “Why?” “Because the product intermittently malfunctions.” “Why?” And

so on.)

List long-standing assumptions about an aspect of your business (“High switching

costs prevent our customers from defecting”) and ask a diverse group if they hold

true.

Encourage debate by holding “safe zone” meetings where open dialogue and

conflict are expected and welcomed.

Create a rotating position for the express purpose of questioning the status quo.

Include naysayers in a decision process to surface challenges early.

Capture input from people not directly affected by a decision who may have a good

perspective on the repercussions.

Interpret Leaders who challenge in the right way invariably elicit complex and conflicting

information. That’s why the best ones are also able to interpret. Instead of

reflexively seeing or hearing what you expect, you should synthesize all the input

you have. You’ll need to recognize patterns, push through ambiguity, and seek new

insights. Finland’s former president J. K. Paasikivi was fond of saying that wisdom

begins by recognizing the facts and then “re-cognizing,” or rethinking, them to

expose their hidden implications.

Some years ago Liz, a U.S. food company CMO, was developing a marketing plan

for the company’s low-carb cake line. At the time, the Atkins diet was popular, and

every food company had a low-carb strategy. But Liz noticed that none of the

consumers she listened to were avoiding the company’s snacks because they were

on a low-carb diet. Rather, a fast-growing segment—people with diabetes—

shunned them because they contained sugar. Liz thought her company might

achieve higher sales if it began to serve diabetics rather than fickle dieters. Her

ability to connect the dots ultimately led to a profitable change in product mix from

low-carb to sugar-free cakes.

To improve your ability to interpret:

When analyzing ambiguous data, list at least three possible explanations for what

you’re observing and invite perspectives from diverse stakeholders.

Force yourself to zoom in on the details and out to see the big picture.

Actively look for missing information and evidence that disconfirms your

hypothesis.

Supplement observation with quantitative analysis.

Step away—go for a walk, look at art, put on nontraditional music, play Ping-Pong

—to promote an open mind.

Decide In uncertain times, decision makers may have to make tough calls with incomplete

information, and often they must do so quickly. But strategic thinkers insist on

multiple options at the outset and don’t get prematurely locked into simplistic

go/no-go choices. They don’t shoot from the hip but follow a disciplined process

that balances rigor with speed, considers the trade-offs involved, and takes both

short- and long-term goals into account. In the end, strategic leaders must have

the courage of their convictions—informed by a robust decision process.

Janet, an execution-oriented division president in a technology business, liked to

make decisions quickly and keep the process simple. This worked well when the

competitive landscape was familiar and the choices straightforward. Unfortunately

for her, the industry was shifting rapidly as nontraditional competitors from Korea

began seizing market share with lower-priced products.

Janet’s instinct was to make a strategic acquisition in a low-cost geography—a yes-

or-no proposition—to preserve the company’s competitive pricing position and

market share. As the plan’s champion, she pushed for a rapid green light, but

because capital was short, the CEO and the CFO resisted. Surprised by this, she

gathered the principals involved in the decision and challenged them to come up

with other options. The team elected to take a methodical approach and explored

the possibility of a joint venture or a strategic alliance. On the basis of that analysis,

Janet ultimately pursued an acquisition—but of a different company in a more

strategic market.

To improve your ability to decide:

Reframe binary decisions by explicitly asking your team, “What other options do

we have?”

Divide big decisions into pieces to understand component parts and better see

unintended consequences.

Tailor your decision criteria to long-term versus short-term projects.

Let others know where you are in your decision process. Are you still seeking

divergent ideas and debate, or are you moving toward closure and choice?

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Determine who needs to be directly involved and who can influence the success of

your decision.

Consider pilots or experiments instead of big bets, and make staged commitments.

Align Strategic leaders must be adept at finding

common ground and achieving buy-in

among stakeholders who have disparate

views and agendas. This requires active

outreach. Success depends on proactive

communication, trust building, and

frequent engagement.

One executive we worked with, a chemical company president in charge of the

Chinese market, was tireless in trying to expand his business. But he had difficulty

getting support from colleagues elsewhere in the world. Frustrated that they didn’t

share his enthusiasm for opportunities in China, he plowed forward alone, further

alienating them. A survey revealed that his colleagues didn’t fully understand his

strategy and thus hesitated to back him.

With our help, the president turned the situation around. He began to have regular

face-to-face meetings with his fellow leaders in which he detailed his growth plans

and solicited feedback, participation, and differing points of view. Gradually they

began to see the benefits for their own functions and lines of business. With greater

collaboration, sales increased, and the president came to see his colleagues as

strategic partners rather than obstacles.

To improve your ability to align:

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Communicate early and often to combat the two most common complaints in

organizations: “No one ever asked me” and “No one ever told me.”

Identify key internal and external stakeholders, mapping their positions on your

initiative and pinpointing any misalignment of interests. Look for hidden agendas

and coalitions.

Use structured and facilitated conversations to expose areas of misunderstanding

or resistance.

Reach out to resisters directly to understand their concerns and then address them.

Be vigilant in monitoring stakeholders’ positions during the rollout of your

initiative or strategy.

Recognize and otherwise reward colleagues who support team alignment.

Learn Strategic leaders are the focal point for organizational learning. They promote a

culture of inquiry, and they search for the lessons in both successful and

unsuccessful outcomes. They study failures—their own and their teams’—in an

open, constructive way to find the hidden lessons.

A team of 40 senior leaders from a pharmaceutical company, including the CEO,

took our Strategic Aptitude Self-Assessment and discovered that learning was their

weakest collective area of leadership. At all levels of the company, it emerged, the

tendency was to punish rather than learn from mistakes, which meant that leaders

often went to great lengths to cover up their own.

The CEO realized that the culture had to change if the company was to become

more innovative. Under his leadership, the team launched three initiatives: (1) a

program to publicize stories about projects that initially failed but ultimately led to

creative solutions; (2) a program to engage cross-divisional teams in novel

experiments to solve customer problems—and then report the results regardless of

outcome; (3) an innovation tournament to generate new ideas from across the

organization. Meanwhile, the CEO himself became more open in acknowledging

his missteps. For example, he described to a group of high potentials how his delay

in selling a stalled legacy business unit had prevented the enterprise from acquiring

a diagnostics company that would have expanded its market share. The lesson, he

explained, was that he should more readily cut losses on underperforming

investments. In time the company culture shifted toward more shared learning and

bolder innovation.

To improve your ability to learn:

Institute after-action reviews, document lessons learned from major decisions or

milestones (including the termination of a failing project), and broadly

communicate the resulting insights.

Reward managers who try something laudable but fail in terms of outcomes.

Conduct annual learning audits to see where decisions and team interactions may

have fallen short.

Identify initiatives that are not producing as expected and examine the root causes.

Are You a Strategic Leader? As you complete this assessment,

think about the work you have done

over the past year related to

developing new strategies, solving

business challenges, and making

complex decisions. Average your

scores for each of the six leadership

skills and then address your weakest

area first, following the

recommendations described in this

article and online.

Create a culture in which inquiry is valued and mistakes are viewed as learning

opportunities.Becoming a strategic leader means identifying weaknesses in the six

skills discussed above and correcting them. Our research shows that strength in

one skill cannot easily compensate for a deficit in another, so it is important to

methodically optimize all six abilities. The following test—a short version of our

Strategic Aptitude Assessment, which is available at hbrsurvey.decisionstrat.com—

can help reveal which areas require attention. For clearer and more useful results,

take the longer survey and ask colleagues—or at least your manager—to review and

comment on your answers..

A version of this article appeared in the January– February 2013 issue of Harvard Business Review.

Paul J. H. Schoemaker is the former research director of the Wharton School’s Mack Institute and

a coauthor of Peripheral Vision (Harvard Business Review Press, 2006). He served as an adviser to the

Good Judgment Project.

Steve Krupp is Senior Managing Partner at Decision Strategies International, Inc.

Samantha Howland, a senior managing partner at DSI, leads its Executive and Leadership

Development Practice.

Related Topics: Leadership Development | Strategic Thinking | Managing Yourself

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2 COMMENTS

TIM HARP a month ago

Hi Team, the links to the tests here are both broken - any chance of an update? Thanks, Chris

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