#17 Analytical rationalists or creative strategists?
This episode was recorded in German.
In the new episode of Hope Is Not a Strategy, strategy call #17 "Analytical rationalists or creative strategists?", strategy consultant Christian Underwood and Professor Dr. Jürgen Weigand, Deputy Dean of WHU (Otto Beisheim School of Management), discuss whether strategy really is pure number crunching and where in the process creativity comes into play.
Strategy work is not pure number crunching, even though data-driven analysis is necessary to get a clear picture of your company's realities. In practice, however, many strategists get lost in the jungle of numbers, search endlessly for information and don't know when it's time to start executing. What's more, people often forget that alongside analysis, the principle of rationality and creativity also play a decisive role in a strategy process. Finding the right balance here looks like an enormous challenge to many companies. Which raises the question: can strategists really do it all at once? Think in numbers and rationally on the one hand, but creatively on the other?
Christian and Jürgen answer with a clear "YES!". In this episode they take the mystery out of the term creativity, make it tangible, and give the rationalists among you practical tactics for thinking creatively in the strategy process, creating innovation and striking a healthy balance between rationality, analysis and creativity.
SHOW NOTES:
Christian Underwood:https://www.linkedin.com/in/christianunderwood/
Prof. Jürgen Weigand:https://www.linkedin.com/in/j%C3%BCrgen-weigand/
Underwood GmbH:https://www.underwood.de
Book "creative strategy" by William Duggan:https://www.amazon.com/Creative-Strategy-Innovation-Columbia-Publishing/dp/0231160526
Book "strategic intuition" by William Duggan:https://www.amazon.de/Strategic-Intuition-Creative-Achievement-Publishing/dp/0231142692
Detailed episode description:
Is strategy work just number crunching?
Strategy is obviously not just number crunching. Analysis is necessary, but it also takes creativity and the intuition to tackle the right things and know you're on the right path. When Christian thinks back to his university days, he associates strategy with a lot of calculation and analysis. And that is an important part of the job when you want to form a picture of your own reality. You need that clarity. But there is no shortage of models and methods for getting there.
In this podcast, Christian and Jürgen mainly talk about strategy in business, a field largely shaped by numbers. Many people are afraid of analysis, because it means dealing with numbers, calculating and comparing, the things you learned at some point in school or at university. There is no way around it if you want to know how well you're performing and where you're headed. So a strategist has to be comfortable with numbers, know what it takes and which quantitative benchmarks the strategy should be measured against.
Christian's experience from past client projects is that clients often talk about their market share, but usually that share is a gut estimate. That way, you never really know how big the theoretical market potential actually is.
Working with incomplete information:
We live in a world full of uncertainty. Information isn't just something you have to go out and get, it's usually incomplete and far from perfect. If you want to apply theory, you need to be aware of that. You can estimate market share from your gut or ask providers who collect and prepare the data accordingly. So first you should define the order of magnitude of information you want to work with. That requires data, because data determines the results. Of course you can distance yourself from numbers and say that qualitative indicators matter just as much, but qualitative indicators often come with a sense of subjectivity. Numbers, on the other hand, give the impression of being objective. So you need both, and as a strategist you should dig into that in depth.
What analysis is really about and what a good balance of quantitative and qualitative indicators looks like:
The danger with analysis is that you analyze too much and lose yourself in it. You have to develop a feel for whether the analysis is good enough and find the point at which the analysis phase is complete and no further influencing factors can be taken into account. To do that, you should have a model in your head that reveals the most important influencing factors, the so-called critical success factors for the strategy. From the data and the model you then derive the best case, the worst case and where your company is likely to land. Defining the best and the worst case is the real art here. At that point you have analyzed enough. You have three scenarios to work with, and then it's time to start executing.
Situation analysis in the StrategyFrame®:
In his consulting work, Christian uses the StrategyFrame®, which consists of three pillars: the situation analysis, the target picture and the fields of action.
The situation analysis is the relevant part for analytics.
Here the company sits at the center, with the external factors positioned around it, customers for example. In everyday company life, these are often already blurred together. One mistake, for instance, is to survey only customers who are already satisfied today. They will probably rate you very highly. But that's methodologically flawed data collection.
These are the key factors you should absolutely account for in your analysis:
New customer needs
How markets are developing
How competitors are positioned
Competitors' performance in the markets
Trends
Industry dynamics
The rules of success
The general environment you operate in
After that, you should look at your own realities and face the truth. How are you positioned yourself? This is the space a strategist should be working in.
The different levels of the strategic environment:
One level is customers.
Here you should ask yourself the following questions:
Who are our current customers?
Who were past customers that we lost?
Who could our future customers be?
This is usually where the marketing research colleagues come in, figuring out who the customers are and how large the potential is.
You would call this the micro level, the market level. Above that sits the industry level. One industry can contain many different markets.
At the industry level, you should be asking these questions:
Who are the direct competitors?
Who are the competitors of the future?
Beyond the micro level, there is also the macro level.
These are the factors a single company or its strategists cannot influence, but must be aware of.
These include, for example:
Tax increases
Developments in international trade
These factors may not play a direct role, but they can create trends that become relevant in the future.
A current example (this podcast was recorded on February 22, 2022, before Russia invaded Ukraine):
If Russia is a major market for your company, it is an open question whether you will still be able to sell your products there tomorrow.
The EU in Brussels is discussing sanctions against Russia. That is a double-edged sword. If you punish Russia, you also hit the producers in the EU and other countries who depend on being able to do business with Russia. Sanctioning Russia means sanctioning those companies at the same time. That can lead to economic consequences nobody intended.
Creativity as part of strategy: reality shows that if you ask clients about their competitors, five people will give you six different answers. There is a lot of uncertainty about which markets you are actually in and who you are playing against. Creativity is not what is needed at this point. First you have to do your homework and get clarity on the status quo. Where are you operating? Why are you operating there? Who are the others?
There is plenty to learn from theory here. Game theory, for example, shows that you have to put yourself in the other party's shoes. You should try to see the world through their eyes and understand it with their mind.
This change of perspective is decisive, and it is the only source of real creativity. Creativity is about bringing factors together. Factors that are already known get combined to create something new: connecting the dots.
Steve Jobs was a master at connecting the dots. Without his foresight and his strategic intuition, there would be no iPod and no iPhone today. Look closely at those products and you quickly realize that all the components were already there. But Steve Jobs had an intuitive sense very early on that recombining those components could create something new. That was an essential part of Apple's strategy. In most cases, this is the hard part, and the part where you run into the most preconceptions.
People are often sorted into creative and non-creative. But as a species, we have always been fairly creative, if only to survive the saber-toothed tiger. Creative problem-solving is in all of us.
There are now plenty of methods for getting creative: design thinking workshops, brainstorming and so on. But when you look at the stories behind innovations and the people behind them, you often find that the spark did not come in a brainstorming workshop. It came in the shower, on the ski slope or at the beach. That is where things that are already neatly filed away in your brain suddenly come together differently. In moments like the one in the shower, you often see how the pieces could fit together.
Carl von Clausewitz, one of the great strategic thinkers on the military side, already described four elements for this:
A different combination of examples or elements from the past, drawn from influences you pick up while reading the newspaper, for instance
An open approach to problem-solving, rather than immediately falling back on experience or knowledge from the past. No ready-made solution at hand
Combining two different things that together add up to something new
Seeing a solution in your mind's eye and recognizing it as such
These four aspects can also be translated into innovation methods for teams.
This is a good place for a reading recommendation. William Duggan, an author from New York, offers great examples in Strategic Intuition and Creative Strategy, from Napoleon to Picasso.
Dealing with experience:
If you want to be creative and innovative, you also have to be able to let go of the past, especially when the past was very successful. Experience can of course be helpful, but if you want to think forward, you have to switch it off as far as possible. Experience can be a real asset, but it also gets in the way of innovation.
If you cannot switch off your experience on your own, try it as a team, ideally with team members who have no clue about the field in question and then say, "Let me ask a dumb question." Those questions are usually the best ones. So you have to question the things that have always been there.
Owner-run companies in particular find it hard to move into new territory and to leave these path dependencies behind. Path dependencies lock you into a certain path. This happens through investments made in the past, such as large machines. Ways of working you are very familiar with and believe will keep making you successful are another risk, especially when you are too confident and assume that your existing approach explains your success (success brings success). Looking at history, including in academic research, you quickly see that success often brings mistakes too. People cling too tightly to their models. Prominent examples are Kodak and Nokia, companies that were simply on a path they could no longer free themselves from. This is also called the arrogance of success. In that situation, it gets very hard to turn the ship around and steer in a different direction.
Right now, digital transformation is causing many companies serious difficulty, above all in rethinking how they work. Different approaches are needed. Suddenly working conditions change, as they did during the COVID pandemic. You are less under the direct control of your department head. These are major challenges, particularly for mid-sized companies.
Invent it yourself or outsource it?
In the past, companies invented a lot themselves. The German engineering approach is to develop things yourself in your own small workshop. But reinventing the wheel over and over is no longer fast enough, or good enough, in today's world.
Jürgen is an economist by training, and economists argue for the division of labor. During the pandemic, though, we learned that the division of labor carries risks too. When things are no longer produced in-house but in other countries, big problems can arise. Look at the automakers, for example. They could not get microchips fast enough because they never produced them themselves and focused on other areas instead. It is a double-edged sword. On one side, you gain advantages through cooperation and the division of labor. On the other, you have to keep the critical know-how in your own hands. Outsourcing IT staff to India is not always the smart move. IT used to be something companies considered outside their core activity and easy to outsource. Today many companies see it differently and want to bring it back in-house.
Creative language in the strategy process:
The analyses are done, you have more clarity, insight and visibility into what's happening inside and outside the company. Now it's about drafting a target picture. This takes linguistic creativity and precision to describe the right things, to be bold and to spell out or address things in a winning and value proposition, the customer value promise, that challenge people and get them moving toward something new. Often the process just cements what's already there. People say it was always good this way. The world outside is changing, but we have to give people stability. Stability is certainly helpful at times, but it doesn't work by enshrining the old in the new target picture, because the point here is to reach a target state, and that takes a lot of creativity already in the workshop.
Clarity also has to be paired with truth. When you analyze what has made you successful so far, you have to be honest with yourself. Is it really the success of your own strategy, or were you simply lucky because others operated less well or the circumstances worked in your favor? Truth is the decisive factor for the next step: formulating a target picture that defines where you actually want to go. Of course there are big words like vision and so on. But in the end it's about what your destination really is. You're setting out on a journey and you want to bring everyone internally along. You can only sell and communicate that journey well if it's clear where the destination lies. Defining it is the main factor after the strategic analysis. Here you have to focus and say plainly what you will do, where you want to go and which things you will no longer do in the future. There are always plenty of temptations along the roadside and on the shore, little oases you'd like to turn off toward. The art is saying: we're not making a stop here.
Does luck play a role in management?
Even if you're a truly great strategist, many different factors always play a role. That includes the bit of luck you usually have to work hard for and earn.
Rationality in economic theory:
Rationality, at least in economic theory, assumes that you have all decision-relevant information at every point in time and are able to identify the best, second-best, third-best (…) solution. In reality it doesn't work that way. You're always just part of a larger system, you can only ever observe a small section of it and influence that small section. If you change all these system properties, you also have to change yourself. Those who recognize this quickly enough and know how to counteract it are the luckier ones. Others may wait too long and fail to pull off that turn.
Balancing rationality, analytics and creativity:
Balancing rationality, analytics and creativity is a major challenge for companies in the strategy process.
To close, Christian and Jürgen share two important tips you can keep in mind in your strategy process:
Always take that step back and look at the overall picture. Don't lose sight of the big picture and don't fall in love with the details. Especially if you're a number cruncher at heart, you have to learn to step back and say: now I'm looking at the whole picture.
Bring someone on board who really has no idea about the subject or the details, who looks at it from the outside and checks whether it makes sense to them or whether it's just the same as what was done before. In other words, bring in a neutral party, a neutral observer who can simply voice an opinion, free of responsibilities within the company, and who asks the questions no one else dares to ask.