Becoming a Strategic Leader

Your Role in Your Organization's Enduring Success

Richard L. Hughes, Katherine M. Beatty, David Dinwoodie

• Publisher: Jossey-Bass
• Year: 2013
• ISBN:
  9781118573150
• Edition: 2
• Topic: Commerce
• Subtopic: Leadership

In the second edition of the best-selling Becoming a Strategic Leader, Richard L. Hughes, Katherine Colarelli Beatty, and David L. Dinwoodie draw from the Center for Creative Leadership's (CCL) acclaimed Leading Strategically program to offer executives and managers a comprehensive approach to strategic leadership that reaches leaders at all levels of organizations.

This thoroughly revised edition concentrates on practical tools for producing impact right away. The authors place special emphasis on three essential strategic components: discovering and prioritizing strategic drivers, which determine sustainability and competitiveness; leadership strategy, which ignites the connections between people critical to enacting the business strategy; and how to foster the individual and organizational learning that is foundational to sustained performance.

The authors and other leadership development professionals have used the distinctive and systematic approach described in this book with great success in CCL's Leading Strategically program. The second edition also contains improved self-assessments that help to align the book's lessons learned with the program's current practices.

Readers will find fresh suggestions about developing the individual, team, and organizational skills needed for institutions to become more adaptable, flexible, and resilient. These are critical strategic attributes in a time of ever more rapid change, greater uncertainty, and globalization.

Chapter 1

What Is Strategic Leadership?

Imagine that you are standing on a beautiful beach, with the sand between your toes, looking out over the deep blue-green water. You feel a fresh and invigorating breeze on your face. You hear the roar of waves breaking in the distance. Every once in a while your warm feet feel the relief of cool water when a particularly strong wave makes its way up the beach.

Watching the ocean has a purpose, for you have a surfboard in hand. You’ve practiced at home: lying on your board in your living room and working to pop up to your feet in a quick and flowing motion. You’ve practiced with small waves: picking those big enough to pick you up, but not big enough to toss you over.

Now you want to try the bigger waves. You walk into the water, get on your surfboard, and paddle out to where the waves are breaking. The wind is strong today, and the waves are big. As you reach what appears to be the best spot, waves are crashing around you, and you are tossed about in the water. You try to catch a wave, turning the nose of your surfboard toward the beach and popping up to your feet on the board, but your timing is off and you find yourself back in the water with the wave and your surfboard crashing over you. You try again, and this time you make it to your feet, but as you stand up, you lose your balance and fall. You try again but are unable to catch the next wave as it rapidly passes by you. Attempt after attempt is met with sour results. You try to figure out what is going wrong, but waves are passing you by and your day of beautiful surfing is turning into a day of frustration. Paddling back to shore, you are not sure what you did wrong, but you hope that the next time will produce a different result.

Now imagine yourself at work. You’ve worked hard for a number of years and have been rewarded with several promotions. But you’ve recently learned from your boss that while the organization values your operational leadership skills, people do not view you as a strategic leader. You asked your boss what that means, only to receive a long and confusing reply without any specifics. Just as it’s difficult to learn to surf when you don’t know what you’re doing wrong, it’s also difficult to become strategic when you don’t understand how you are not that way now and no one can tell you what to do differently.

Increasingly organizations are calling on people at all levels to be strategic. Even if you have not heard that you need to be more strategic, we bet you can think of others with whom you work who need to develop their strategic capabilities. However, the path to that end is neither clear nor well defined. In some ways, it may feel a bit like learning to surf. You find yourself in the middle of chaos, business issues and initiatives swirling all around you like waves. You’re not quite sure which one calls for your best energies (which waves to catch), and even if you pick one, you might not be able to find your balance and ride it to a satisfactory conclusion.

Our intent in this book is to help you become strategic. We also intend to help you help others throughout your organization become more strategic and help teams with strategic responsibilities to meet those demands more effectively. In this chapter, we lay a foundation and explore the nature of strategic leadership as we consider the following questions:

• What are the definition and focus of strategic leadership?
• How does strategic leadership differ from leadership?
• Who should be strategic?
• How is “being strategic” about making strategy?
• How is “being strategic” about making strategy come alive in the organization?

With this groundwork in place, we will turn our attention in successive chapters to the specific question of how individuals and teams exercise strategic leadership.

The Definition and Focus of Strategic Leadership

Individuals and teams enact strategic leadership when they create the direction, alignment, and commitment needed to achieve the enduring performance potential of the organization.

This statement is a real mouthful. But because it encompasses all of the critical elements of strategic leadership, we offer it as our definition. The focus of strategic leadership is the enduring performance potential of the organization—achieving the potential of the organization over time so that it will thrive in the long term. This is true whether the organization is for profit or nonprofit, governmental or nongovernmental. It depends only on whether your organization seeks and achieves enduring capabilities that provide distinctive value to stakeholders over the long term in whatever sector your organization operates or whatever bottom line you are measured by.

Later in this chapter, we discuss the strategy process in more detail and how to use it to help achieve enduring performance potential. We begin by considering two organizations that demonstrate the difference between an organization that achieves enduring performance potential and one that did not achieve that potential: IBM and Digital Equipment Corporation (DEC). Both companies faced challenges over the course of many years but navigated those differently and with different enduring results. IBM was founded in 1911 as the Computing Tabulating Recording Company, and in 2012 it was ranked the ninth most profitable company based in the United States (“Fortune’s 20 Most Profitable Companies,” 2012). DEC was founded in 1957 and ceased to exist after being acquired by Compaq in 1998. We focus on a particularly turbulent time in the industry: the 1990s.

IBM: A Strategy Story

In 1993, many experts in the technology industries had concluded that IBM was inching toward its last days as an organization. Although the company had its most profitable year in 1990, the early 1990s saw big changes in the world of computers. Smaller, more nimble companies were innovating their way into the hearts of consumers and businesses, and the traditional big computers that IBM produced were seen as outdated, old technology. IBM stock had dropped from its 1987 high of forty-three dollars a share to less than thirteen dollars a share at the end of the first quarter of 1993 (Gerstner, 2002). Lou Gerstner joined IBM as its CEO in April 1993. IBM was on the verge of being split into autonomous business units when Gerstner arrived, a move that would have dissolved the organization that had long been a computer industry icon.

Gerstner chose a different path for the company. He kept the company together and took critical and bold steps not only to keep the company alive but to revitalize it to the point where it again led the industry. Most notably, Gerstner adopted a new strategy that moved the company from a product-driven approach to a service-driven approach. This was no easy task. It required a complete retooling of the people, processes, and systems in the organization. But the work paid off, and IBM’s stock rose every year except one until Gerstner retired early in 2002.

IBM continues on the path of constant retooling among segments and markets served. According to its website, in 2000, 35 percent of its pretax income came from hardware/financing, 38 percent from services, and 27 percent from software. By 2012, that distribution had shifted to 14 percent from hardware/financing, 41 percent from services, and 45 percent from software. Software alone is expected to bring in 50 percent of segment profit by 2015. Similar changes are being made regarding the geographic reach and scale. In the year 2000, 11 percent of revenue came from growth markets. In 2012, that figure was 24 percent, and it is expected to be 30 percent by 2015. Clearly IBM continues to identify and execute changes needed to perform as the industry shifts and grows.

Digital Equipment Corporation: A Strategy Story

Contrast IBM’s story with the story of one of its key competitors, Digital Equipment Corporation (2004). Ken Olsen founded DEC in 1957 and ran the company until the 1990s, when Robert Palmer replaced him. DEC was known for several advances in the computer industry, including the first commercially viable minicomputer and the first laptop. It was also the first commercial business connected to the Internet.

With more than a hundred thousand employees, DEC was the second-largest computer company in the world at its peak in the late 1980s. But it does not exist as an organization today. With the successes of the 1980s, the company became more and more insular. Its products were well designed, but they would work only with other DEC products and so customers tended to overlook them. Olsen also believed that DEC’s products, with their superior engineering, would stand alone and did not need advertising. When the new RA-90 disk drive came to market very late and several other products ran into trouble, competitors overtook the company with similar products at lower prices. DEC experienced its first layoffs in the early 1990s. The company was sold to Compaq in 1998, and then Hewlett-Packard acquired Compaq in 2002. Clearly DEC was led with great fervor during its early years, and the company was able to achieve great things. But that greatness was not sustained.

What Makes Strategic Leadership Different?

What led IBM to thrive and DEC to die? Why was IBM able to weather a very difficult storm, make necessary changes, embark on a new path, and reach success in a new way, while DEC was swallowed up by its competition? Was it just that IBM had smarter people? We know the DEC employees were smart enough to develop new technologies that pushed the technology industry forward. We also know the individuals who ran IBM before Gerstner arrived were also bright—in fact, he was taken aback by the potential and capabilities of the people he met when he arrived there: “How could such truly talented people allow themselves to get into such a morass?” (Gerstner, 2002, p. 42). Both organizations clearly had smart and capable people. So what differentiated IBM? The short answer is that effective strategic leadership—leadership focused on achieving enduring performance potential—was enacted at IBM.

When we discuss enduring performance potential as the focus of strategic leadership, some of the executives we work with ask us, “Isn’t that just leadership? How are they different? If you’re a good leader, aren’t you, by definition, a good strategic leader?” Not necessarily. In general, leadership exists when a group of two or more people has created common direction, alignment, and commitment. However, this can happen in any context. For example, when a leader works with a direct report to structure assignments, provide resources for accomplishment, and checks on progress along the way, this is a form of leadership. The key to leadership that is strategic in nature is the context within which that leadership is occurring: it must have strategic implications for the organization. Specifically,

• Strategic leadership is broad in scope.
• The impact of strategic leadership is felt over long periods of time.
• Strategic leadership often involves significant organizational change.

Scope

The broad scope of strategic leadership means that it has impacts on areas outside the leader’s own functional area and business unit—and even outside the organization. This broad scope requires seeing the organization as an interdependent and interconnected system of multiple parts, where decisions in one area provoke actions in other areas. The waves in our surfer’s ocean provide an analogy: as each wave crashes to the surface, it disturbs the water, which moves in reaction to the falling wave. External forces such as the wind also affect the waves. In the same way, the scope of strategic leadership extends beyond the organization, acting on and reacting to trends and issues in the environment.

The scope of leadership does not necessarily extend this far. For example, a person who facilitates the decision-making process of a group demonstrates effective leadership even if the decision is small in scope, such as assigning group members to parts of a project.

Duration

Like its scope, the time horizon of strategic leadership is also far reaching. The strategic leader must keep long-term goals in mind while working to achieve short-term objectives. Nearly half a millennium ago, the Japanese military leader Miyamoto Musashi said, “In strategy, it is important to see distant things as if they were close and to take a distanced view of close things” (Advice on Strategy, n.d.). His apt observation describes the tension between short-term and long-term perspectives that strategic leaders must balance.

Many of our Leading Strategically program executives feel a tremendous pressure to make short-term numbers. In fact, it is the most frequently mentioned issue when we ask them to define the major personal challenge to their becoming strategic leaders. One executive characterized the challenge as “balancing current operational needs versus looking at the long-term perspective of growth and development of our staff and business practice.” Another said, “I need to let go of the busy day-to-day activities and spend more time thinking about the future.” In our experience, such executives have typically risen through the ranks by being rewarded for their strong operational leadership—their ability to fight the daily fires and come out ahead. In fact, one executive commented that he was so good at fighting fires that he sometimes created them just so that he could fight them! When a person has developed such strength in a particular area, it is very difficult for him or her to shift focus and do something different.

Lou Gerstner provides a potent example of someone who was able to make a decision for the long run, even though it clearly had negative short-term implications. When he took over IBM in 1993, the company was bleeding cash. Mainframe revenue had fallen from $13 billion in 1990 to around $7 billion in 1993, and competitors were slashing mainframe prices to levels significantly below the prices of IBM products. Customers were asking IBM to do the same, so keeping prices above the competition ran the long-term risk of losing key customers. However, cutting prices would threaten IBM’s cash position even further in the short term. Gerstner (2002) chose to slash prices, and he believes this was one of the key decisions to saving IBM.

In contrast, not all leadership requires this forward view to be effective. Very good operational leaders manage day-to-day functions effectively and are skilled at working with people to ensure that short-term objectives are met. This is important work, but it does not always need to take the long term into account.

Organizational Change

In order to achieve enduring performance potential, organizations need to undergo periodic transformation, and therefore strategic leadership requires successfully navigating and leading these changes. To the extent that strategy involves interconnected patterns of choices throughout the business, strategic transformation requires a shift in these interconnected patterns, and this is complex and multifaceted.

The shift IBM made from a product company to a service company is one potent example. But there are others as well that may not involve the entire organization. Consider the strategic impact of a new compensation system that touches all parts of the organization, provides a structure for defining differences in roles and appropriate salary ranges, and ties performance plans and measures to the strategic objectives of the organization, giving people a clear understanding of what is required to advance along various career ladders. The human resources team that designed and implemented this system, replacing one that included no common understanding of appropriate salary ranges for roles, criteria for raises, and career progression, exercised genuine strategic leadership.

Effective leadership does not necessarily institute significant organizational change. For example, leading a team to complete a recurring task, such as closing out the organization’s quarterly books, requires effective leadership but does not create significant change.

A final example of leadership that does not have strategic implications is leading a team to complete a task that is not strategic in nature. A team assigned to open up a new retail outlet store in a global company that has thousands of such stores worldwide is a case in point. The team may consist of several members whose collective goal is to open the new store in a timely and effective way. Such a setup team will move from one store opening to the next. Although this work is absolutely critical to the successful implementation of the organization’s overall strategy, it is not in and of itself strategic in nature. The scope and time frame are not far-reaching, nor does this work involve significant organizational change. However, if members of this team work with others to review the distribution of stores across the world, understand trends among consumers, and create plans for new store openings and closures, then that work woul...