I was asked recently to speak at a conference, when I ask about the topic to be discussed I was instructed ‘to discuss leadership’, I sat back and smiled, it was clear the person leading the content really did not understand the breadth of the subject in today’s business world, I asked if I could discuss leadership in the context of strategic leadership vs undermining metrics, I received a nod, so I took that as an acceptance.
The concept of strategy emerged more than 2,500 years ago in ancient Greece with a one-dimensional perspective that focused on how generals waged war. Under this concept, a general is responsible for multiple units, on multiple fronts, in multiple battles, over various spans of time. The general’s challenge is to provide the vision and preparation for orchestrating the subsequent comprehensive actions.
The general’s strategy, then, consists of an integrated set of choices designed to achieve specific goals. But it is important to remember that strategy is not an accurate term for every important choice that the general faced.
This is where organisations fail in the business world. Many executives have begun calling everything they do strategic. Too often, strategy becomes a catchall term, used to mean whatever the executive wants it to mean.
And all too often, the result is that the organisation undertakes a collection of business activities that create confusion and undermine credibility because they are not strategically aligned. Sometimes these executives confuse actions or tactics which are the means by which strategies are executed with strategies themselves. They are then left to wonder why they failed to achieve their desired goals.
Strategy addresses how the business intends to engage its environment in pursuit of its desired goals. Without strategy, time and resources will be wasted on piecemeal, disparate activities. Sometimes, senior managers will fill the void with their own interpretation of what the business should be doing. The result is usually unsuccessful initiatives that are incomplete, disjointed, and confusing.
Strategic leadership rises above this confusion. But it does not come easy. Studies show that fewer than one in 10 leaders exhibit strategic skills, a woefully inadequate number.
It would be a mistake to believe that strategic leadership is only needed in times of crisis. During the good times, strategic leadership is just as important as during the bad times, because it ensures valuable resources are focused on the right areas and in the right ways, long term planning of strategy to execution vs short-termism and no planning.
At its essence, strategic leadership is the ability to learn, anticipate, challenge, interpret, decide, and align organisational capabilities and competing interests in ways that effectively engage the everyday opportunities and problems presented by the competitive environment. It is the ability to translate vision into reality by seeing the bigger picture and longer time horizons, then creating the strategies necessary to achieve goals that deliver valued results.
Tying performance metrics to strategy has become an accepted best practice over the past few decades. Strategy is abstract by definition, but metrics give strategy form, allowing our minds to grasp it more readily. With metrics, Ford Motor Company’s onetime strategy “Quality is job one” could be translated into Six Sigma performance standards. Apple’s “Think different” and Samsung’s “Create the future” could be linked to the number of sales from new products. If the strategy is the blueprint for building an organisation, metrics are the concrete, wood, drywall, and bricks.
But there’s a hidden trap in this organisational architecture. A company can easily lose sight of its strategy and instead focus strictly on the metrics that are meant to represent it. We all know that metrics are inherently imperfect at some levels. In business, the intent behind metrics is usually to capture some underlying goal and they almost always fail to do this as well as we would like.
Surrogation is especially harmful when the metrics and the strategy are poorly aligned. The greater the mismatch, the larger the potential damage.
Executives and senior managers who are charged with communicating strategy into this process are responsible for outcomes, strategy needs embedded execution and metrics on its success.
In addition to executives and senior managers losing sight of strategy over metrics, they often make the mistake of sticking with a failing strategy.
Why, and how do they avoid this trap?
Every company strategy whether good or bad has dissenters. But in some organisations, objectors are either suppressed or they understand that any constructive feedback isn’t welcome
Sticking with a once-successful strategy for too long can have repercussions. So how can companies avoid making a similar mistake when facing disruption?
The Too Many Bosses, Too Few Leaders
Executives and senior management must challenge mutually reinforcing biases that see people being influenced by a prior commitment to a particular course of action.
People who make investment decisions push ahead with a project even if things go badly because of the costs they have already incurred. Those costs will not be recovered if they walk away. This is called the ‘sunk cost fallacy’.
Decision-makers prefer to invest more in a course of action rather than withdraw and lose everything, believing that they can turn the situation around. In this scenario, people suffer from loss aversion.
The illusion of control takes hold. This bias, which is reinforced by the previous two, sees people overestimating their ability to control the future. They take credit for the outcomes of decisions and confuse forecasting the future with actually making it happen.
An inherent desire to complete tasks such as loading the dishwasher or finishing a project drives most people who have a preference for completion.
Those opposing a course of action often remain silent because they believe no one else shares their view. Meanwhile, colleagues interpret their silence as agreement. That can lead to everyone agreeing to a decision that nobody believes in. This is known as pluralistic ignorance.
Psychological and sociological studies show that someone’s identity and social status is often linked to their commitments. People can suffer a perceived loss of status or a threat to their identity when they withdraw from a commitment.
Understanding what drives people to push ahead with a project even if it’s failing is the first step to avoiding an escalation of commitment. The next is taking the following measures to prevent it from happening.
Spotting an escalation of commitment can be challenging, which is why things go wrong before executives and senior managers really see what’s happening.
Once invested in a course of action, they ignore the signs even when their company is on the verge of collapse. Prevention is possible, providing managers across the organisation are encouraged through the right processes and practices to consider different strategies and adopt a more objective approach to decision-making.
Some of the factors driving this uncertainty include advances in technology and the quantity of information being produced; shifting customer needs; internal competition within companies for resources; struggles to maintain profitability as the economy changes and evolves; and the new normal of doing more with less for countless business operations.
But we also see markets offering greater opportunities to those able to adapt.
The ability to influence others to engage in efforts that enable organisational success, while acknowledging the constraints of time and resources, is at the heart of being strategic. It is why leaders must prove they are capable strategic leaders.
These leaders recognise situational constraints and adapt to their environment. By necessity and design, they are flexible and able to adjust their strategies to achieve the stated goals. What they do is measurably tied to goals.
Their attributes go beyond charisma, experience, and expertise. Aspirations are not enough; businesses want to see results. And results, more often than not, take strategic leadership.
As Jerome Powell – Chair of the US Federal Reserve, once said:
“Alignment of business strategy and risk appetite should minimize the firm’s exposure to large and unexpected losses. In addition, the firm’s risk management capabilities need to be commensurate with the risks it expects to take.”