#17 Analytical rationalists or creative strategists?
In the new episode "Hope is not a strategy" in Strategy Talk #17 "Analytical rationalists or creative strategists?", strategy consultant Christian Underwood and Professor Dr. Jürgen Weigand, Deputy Dean of WHU (Otto Beisheim School of Management), talk about whether strategy is really just pure number crunching and where creativity is needed in the process.
Strategy work is not just number crunching - even if number-based analytics are necessary to gain an overview of the company's own realities. In reality, however, many strategists often get lost in the jungle of numbers, endlessly searching for information and not knowing when it is time to start implementation. Furthermore, it is often forgotten that in addition to analytics, the rationality principle and creativity also play a decisive role in a strategy process. Finding the right balance here presents many companies with a seemingly unbelievable challenge. This raises the question: can strategists do everything at the same time? In other words, can they think in terms of numbers and rationality on the one hand, but also creatively on the other?
Christian and Jürgen answer this with a clear "YES!". In this episode, they take the mystery out of the concept of creativity, make it tangible and also provide the rationalists among you with tactics on how to think creatively in the strategy process, create innovations and achieve a healthy balance between rationality, analytics and creativity.
SHOWNOTES:
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:
Strategy work only number crunching?
Strategy is of course not just number crunching. Analytics is necessary, but it also requires creativity and the intuition to do the right thing and be on the right track. When Christian thinks back to his time at university, he associates strategy with a lot of arithmetic and analysis. This also plays an important role when you want to get a picture of your own reality. You need this clarity. However, you almost can't save yourself from models and methods to do this.
In this podcast, Christian and Jürgen mainly talk about strategies in the business sector, which is largely characterized by numbers. Many people are afraid of analytics because it means you have to deal with numbers, calculate and compare what you have learned at school or university. This is unavoidable if you want to know how well you are performing and where you are going. A strategist must therefore be practiced in dealing with numbers, know what it takes and which quantitative measuring points the strategy should be based on.
Christian's experience from customer projects in the past is that customers often talk about their own market shares, but these are usually estimated from a gut feeling. In the end, it is impossible to know for sure how big the theoretical market potential is.
Dealing with incomplete information:
We live in a world full of uncertainties. Information is not just a debt to be collected, but is usually incomplete and imperfect. If you want to apply theory, you have to be aware of this. Market shares can be estimated based on gut feeling or by asking providers who collect and process data accordingly. You should therefore first define the order of magnitude of information you want to consider. You need data for this, because data determines the results. Of course, you can distance yourself from figures and say that qualitative indicators are just as important, but qualitative indicators are often associated 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 need to look closely at both.
What the analysis is really about and what a good balance of quantitative and qualitative indicators looks like:
The danger with analyses is that you analyze too much and get lost in the analysis. You need to develop a feeling for whether the analysis is good enough and find a point at which the analysis phase is complete and no more influencing factors can be taken into account. To do this, you should have a model in mind that provides information about the most important influencing factors or the so-called critical success factors for the strategy. The data and the model are then used to derive the best and worst case scenarios and where your company is likely to be. The art here is to separate the best from the worst. At this point, you have analyzed enough. There are three scenarios you can work with and then you should start with the implementation.
Situation analysis in the strategy frame:
Christian works with the strategy framework, which consists of three pillars - the situation analysis, the target picture and the fields of action.
The situation analysis is relevant for the analytics.
Here, the company is centrally located in the middle and the external factors, such as customers, are positioned around it. This is often already mixed up in the reality of the company. For example, it is a mistake to only survey customers who are already satisfied. They are likely to rate you very highly. However, this is then methodologically incorrect.
You should definitely consider these key factors in your analysis:
New customer needs
Development of the markets
List of competitors
Performance of competitors in the markets
Trends
Industrial dynamics
Rules of success
General environment in which you operate
You should then deal with your own realities and look the truth in the face. How are you positioned yourself? This is the framework within which you should operate as a strategist.
Different levels of the strategic environment:
Customers are one level.
The following questions should be asked here:
Who are the current customers?
Who were past customers who were lost?
Who could be future customers?
This is usually where the colleagues from Marketing Research come in to determine who the customers are and how big the potential is.
This would be referred to as the micro - the market level. Above this is the industry level. An industry can have many different markets.
The following questions should be asked at industry level:
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 that the individual company or the strategists cannot influence, but must be aware of.
These include, for example
Increase in taxes
Events in international trade
These factors may not play a direct role, but can lead to trends that will become relevant in the future.
Current example (this podcast was recorded on 22.02.2022 before the invasion of Ukraine by Russia):
If Russia is a large market for your own company, it is questionable whether you will be able to sell your products there tomorrow.
The EU in Brussels is discussing sanctions for Russia. This is a double-edged sword. If Russia is sanctioned, there are of course also producers from the EU and other countries who are dependent on being able to do business with Russia. If you sanction Russia, you sanction these companies at the same time. This can lead to economic consequences that were not intended.
Creativity as part of the strategy:Reality shows: If you ask customers about their competitors, you will get six different opinions from five people. There is a lot of confusion about which markets you are in or who you are playing against. Creativity is not yet required at this point. First of all, you have to do your homework and gain clarity about the status quo. Where do you operate? Why are you there? Who are the others?
You can learn some important things from theory here. Game theory, for example, shows that you have to put yourself in the shoes of others. You should try to see the world through their eyes and understand it with their mind.
This change of perspective is crucial and only from this can creativity be gained. Creativity is associated with bringing factors together. Factors that are already known are brought together to create something new - connecting the dots.
Steve Jobs was a master at "connecting the dots". Without his foresight and strategic intuition, there would be no iPod or iPhone today. If you take a closer look at these products, you quickly realize that all the components were actually already there. However, Steve Jobs intuitively had the feeling quite early on that you could create something new by recombining the components. That was an essential part of Apple's strategy. In most cases, this is the difficult part, where you encounter the most prejudices.
People are often divided into creative and non-creative. However, as a human species, we have always been relatively creative in order to survive against the sabre-toothed tiger, for example. Creative problem solving is given to each of us.
There are now various methods for getting creative, such as design thinking workshops, brainstorming and so on. However, if you look at the stories behind innovations and innovators, you often find that the brilliant idea didn't come in a brainstorming workshop, but in the shower, while skiing or on the beach. This is where things come together that are actually already sorted in the brain, but suddenly come together differently. In moments like in the shower, you often realize how these parts could fit together.
Carl von Clausewitz, one of the great strategic thinkers of a military nature, also described four elements:
Other combination of examples or elements from the past of influences that are consumed, for example, when reading the newspaper
Approach problem solving with an open mind and do not immediately fall back on experience or knowledge from the past. Do not have a ready-made solution at hand
Combination of two different things that together create something new
See a solution in your mind's eye and understand it as such
These 4 aspects can also be converted into innovation methods for teams.
In this context, we would like to recommend some literature. An author from New York, William Duggan, with Strategic Intuition or creative strategy, has listed beautiful examples from Napoleon to Picasso.
Dealing with experiential knowledge:
If you want to be creative and innovative, you have to be able to let go of the past. Especially if the past was very successful. Experiences from the past can of course be supportive, but if you want to think ahead, you have to try to switch them off as far as possible. Experience can be very positive, but it can also be a hindrance to innovation.
If you can't switch off your experience alone, you should try it in a team. Especially with team members who actually have no idea about the area in question and then say "I have to ask a stupid question". These questions are usually the best questions. So you have to question things that have always been there.
Owner-managed companies in particular find it difficult to move into new areas and then leave these path dependencies behind. Path dependencies lock you into a certain path. This happens, for example, through investments such as large machines that were made in the past. Procedures with which you are very familiar and which you believe will be successful in the future also represent a danger. Especially if you are overconfident and think that your previous approach explains your success (success brings success). When analyzing history, even in the academic field, it quickly becomes clear that success often brings mistakes. People get too stuck in their models. Prominent examples are Kodak or Nokia, which were simply on a path from which they could no longer free themselves. This is also known as the arrogance of success. In this situation, it becomes very difficult to turn the tide and steer in a different direction.
The digital transformation is currently causing major difficulties for many companies, especially when it comes to rethinking. Other approaches are needed. Suddenly, as during the coronavirus pandemic, workplace conditions are changing. People are less under the direct control of the head of department. These are huge challenges, especially for SMEs.
Invent it yourself or outsource it?
In the past, people invented a lot of things themselves. The German engineering approach is to develop things yourself in your own small workshop. But reinventing the wheel over and over again is no longer appropriate or sufficient in today's world in terms of speed.
Jürgen is an economist by training and economists advocate the division of labor. However, the pandemic has taught us that the division of labor also harbors risks. If some things are no longer produced in-house but in other countries, major problems can arise. This becomes clear when you look at car manufacturers, for example. They didn't get the microchips fast enough because they never produced them themselves but focused on other mainstays. This is a double-edged sword. On the one hand, you have advantages through cooperation and division of labor. On the other hand, of course, you also have to keep the critical know-how in your own hands. It doesn't always make sense to outsource IT staff to India. In the past, for example, IT was something that companies said was not part of their core activity and could easily be outsourced. Today, many companies think differently and want to take it back into their own hands.
Creative language in the strategy process:
Now the analyses have been carried out, there is more clarity, insight and transparency about what is happening inside and outside the company. Now it's time to create a target image. This requires linguistic creativity and precision in order to describe the right thing, to be courageous and to formulate or address things in a winning and value proposition - i.e. customer value proposition - that challenge you and encourage you to move towards something new. The process often codifies what is already there. People say that it has always been good. The world outside is changing, but we need to give people stability. Stability is certainly helpful sometimes, but it doesn't work by manifesting the old in the new target image, because the aim here is to achieve a target state that requires a lot of creativity in the workshop.
Clarity must also be complemented by truth. When analyzing what has made you successful so far, you also have to be honest with yourself. Is it really the success of your own strategy or were you possibly just lucky because others operated less well or the circumstances led to this? Here, truth is the decisive factor for the next step, namely the formulation of a target image that defines where you actually want to go. Of course there are big words like vision etc. In the end, however, it's about what your actual destination is. You embark on a journey that you want to take everyone on internally. This journey can only be sold and communicated well if it is clear where the destination is. The definition of this is the main factor after the strategic analysis. This is where you need to focus and clearly state what you are going to do, where you want to go and which things you will no longer do in future. There are always many temptations at the side of the road and on the shore, little oases that you want to turn off to. The trick is to say that you're not going to stop off here.
Does luck play a role in management?
Even if you are a great strategist, many different factors always play a role. This includes a little bit of luck, which you usually have to work hard for and earn.
Rationality in economic theory:
Rationality, at least in economic theory, assumes that you have all the information relevant to the decision at all times and are able to identify the best, second-best, third-best (...) solution. In reality, however, it does not work in this way. There are only ever parts of a larger system and you can only ever observe a small section and influence this small section. If you change all these system properties, then you also have to change yourself. Those who recognize this quickly enough and know how to take countermeasures are the happier ones. Others may wait too long and don't manage to turn things around.
Balance between rationality, analytics and creativity:
The balance between rationality, analytics and creativity presents companies with major challenges in the strategy process.
Christian and Jürgen conclude with two important tips that you can consider in the strategy process:
You should always take that step back and look at the big picture. You shouldn't lose sight of the big picture and you shouldn't be in love with the details. Especially if you're a numbers cruncher at heart, you have to learn to take a step back and say: I'm going to look at the whole picture now.
You should get someone on board who doesn't really know anything about the subject matter or the details and look at it from the outside and check whether it makes sense to them or whether it's just the same thing that has been done before. In other words, bring in a neutral party, a neutral observer who can simply express their opinion - free from corporate responsibilities and ask the questions that no one else dares to ask.