Michael D. Watkins: The Six Disciplines of Strategic Thinking

The power of strategic thinking

The strategic thinking is the fast lane to the top. Strategic thinking is the set of mental disciplines leaders use to recognize potential threats and opportunities, establish priorities to focus attention, and mobilize themselves and their organizations to envision and enact promising paths forward.

It means looking beyond the present situation and thinking critically and creatively about the many potential futures.

Critical thinking is the ability to evaluate information and arguments logically and systematically. It involves gathering and assessing facts, recognizing assumptions and biases, and evaluating the strengths and weaknesses of arguments.

Creative thinking is the ability to generate new and innovative ideas. It involves thinking outside the box, questioning assumptions and challenging status quo.

Strategic thinking is focused on achieving long-term organizational goals and making effective decisions, design thinking is focused on creating innovative solutions to delight customers.

Warren G. Bennis and Burt Nanus in the mid-1980s created terms VUCA (volatility, uncertainty, complexity and ambiguity).

Complexity means the domain of interest has many interconnected variables that make it challenging to comprehend with the limited cognitive capacities that we all have as human beings. Strategic thinkers are skilled at navigating complexity because they understand how systems work and focus their attention on what really matters.
Uncertainty means dealing with situations with a clear set of potential outcomes but where specific event that will occur cannot be perfectly predicted. Strategic thinkers isolate the most important uncertainties, think about probabilities and explore the implications of plausible scenarios.
Volatility means that important things change rapidly. Strategic thinkers rapidly sense and respond to emerging threats and opportunities.
Ambiguity means there are diverse viewpoints about what problems the organization should focus on. Strategic thinkers negotiate among differing interests and perspectives to create shared frames of problems and agreements.

Competitive analysis and strategic planning are deductive and analytical; strategic thinking is more inductive and more about synthesis.

The following equation defines your strategic thinking capacity (STC):

STC = Endowment + Experience + Exercise

There are three essential personality prerequisites for being a strong strategic thinker:

The first is openness to new experiences.
The second is an unshakeable confidence that you can anticipate and proactively shape the future for yourself and your organization.
The third is a drive to win.

There are six mental disciplines that constitute strategic thinking. First three are the foundation of your ability to recognize and prioritize the challenges and opportunities. The other three enhance your ability to mobilize your organization.

Pattern recognition.
System analysis.
Mental agility.
Structured problem-solving.
Visioning.
Political savvy.

RPM – recognize, prioritize and mobilize.

The discipline of pattern recognition

Pattern recognition is the ability to identify and detect regularities or patterns in the world around us.

Executives who are good at pattern recognition match their observations about what is happening in the world to their memory patterns. That helps them to rapidly identify what is important to focus on.

Jack Welch: “Seeing around the corners is what differentiate the good leader. Not many people have that. Not many people can predict that corner.”

In pattern recognition it helps if you understand what two types of thinking (fast and slow) are, what associative activation (one idea activates relate ideas stored in your memory) and priming (exposure to one stimulus makes you react faster to related stimuli) are.

It’s a legacy of evolutionary biology that we prioritize the gravest threats and most promising opportunities to boost our chances of survival. But be aware about the pitfalls of selective attention. Understand confirmation bias, hallo effect, wishful thinking aka sunk cost fallacy, self-serving bias (blaming outside factors).

Continuous adaptation is a hallmark of great strategic thinkers.

You cannot hope to develop superior pattern recognition in every business domain. You must immerse yourself deeply in selected areas. You can work with experts. You should cultivate your curiosity and search for wide net of information. Look for trends. Use case studies. Simulations and good feedback will also help you with pattern recognition.

The discipline of system analysis

System analysis is about building mental models of complex domains, such as the competitive environment in which your business operates. The process of creating systems models consists of:

breaking complex phenomena down into sets of component elements
understanding how those elements interact
using that information to build good representations of the most important cause-effect relationships in the business world.

System analysis is based on the idea that the interactions between parts determine the behavior of a system.

Engineers have long used systems models, often supported by computer-based modelling to design complex products.

You can model many relevant business domains as systems: production processes, organizations, industries and economics.

System analysis is a powerful tool for managing complexity, focusing attention and taking action.

System models have three components: elements, interconnections (or interfaces) and a purpose or function.

In the 1970s, Jay Galbraith, published his Star Model. In 1980s, the consultancy McKinsey introduced the 7S Framework. The models are similar. Galbraith divided organizations into five interconnected elements arrayed in the shape of a star strategy: strategy, structure, processes, rewards and people. McKinsey seven elements are: strategy, structure, systems, staff, style (culture), shared values.

Authors model is culture in the center, interconnected with strategic direction, processes & systems, structure & decision-making, people & capabilities, measures & rewards.

Modelling business domains as systems can also help you identify potential leverage points. These are places in the system where modest changes create significant shifts. Another area where system analysis can help is identification of binding constraints. And tipping points.

Well design systems are adaptive.

Important element is threat detection. Crisis management is critical subsystem of adaptive organization. Your organization needs to have a problem-prevention subsystem that acts proactively, thereby avoiding the need to respond reactively.

Four interconnected systems are:

Threat detection
Crisis management
Post-crisis learning
Problem prevention

Systems models are helpful only when they capture a domain’s essential features and dynamics. This is known as the fidelity of the model. The model is only as good as assumptions you have when you made them.

95 per cent of the world’s population cannot think in terms of systems because they are so used to using simple cause-and-effect chains to solve problems.

Defining the boundaries of systems is the first step to modeling. The next step is mapping out what happens, why it happens and how. The third step is assessing whether the system has limiting factors that could be addressed. Next you will need to think through different solutions and evaluate their potential effectiveness using simulations, experiments or prototypes. After evaluation you need to make a decision.

The discipline of mental agility

Mental agility relies on two cognitive abilities that complement and amplify one another. The first is level-shifting. This is the ability to explore challenging business situations using different levels of analysis. The second pillar is game-playing. This is the ability to focus on the “games” your business needs to play, anticipate the actions of other intelligent “players”, and factor them into your strategy.

Level-shifting lets you explore challenges and opportunities from multiple, complementary perspectives. The faster you shifts between levels become, the more likely you are to leave people on your team confused.

Strategic thinkers must:

Asses what types of games they are playing.
Figure out who all the players are, and what they care about.
Identify opportunities to create value through cooperation and to capture value through competition.
Craft their strategies accordingly.

Decision-making processes in organization are like rivers: big decisions to solve problems are powerfully shaped by earlier processes that help you find alternatives and evaluate their costs and benefits. By the time the problem and the options have been defined, the river is already flowing powerfully in its channel – and the eventual choice may be a foregone conclusion.

A state of equilibrium in the industry means that no players in the game have an incentive to diverge from their current strategies for creating and capturing value.

Backward induction is about looking forwards in time to gain clarity about where you want to end up, and then reasoning backwards to the present to define your best first move.

In Scenario Thinking George Wright and George Cairns outline an eight-stage process for organizing a scenario workshop:

Define the main issues about the future and set a timescale to work within to solve them.
Determine external forces driving changes in the strategic landscape.
Cluster these driving forces.
Define two extreme but possible outcomes for each cluster of forces, then determine the relative degree of impact on the local issue.
Assess the degree of uncertainty.
Do a reality check of the customer for gaps in logic, scale and information to confirm that they still make sense.
Groups the outcomes into best-case and worst-case scenarios.
Develop these scenarios into storylines.

Mental agility is the ability to switch between different tasks, shift your attention and think flexibly. In strategic thinking, it’s your level-shifting and game-playing capabilities.

The discipline of structured problem-solving

The next three disciplines are about the mobilization part of the recognize-prioritize-mobilize (RPM) cycle.

Structured problem-solving supports you in the systematically thinking through problems and developing potential solutions. It is a systematic approach that breaks problem-solving down into discrete steps like: identifying key stakeholders, framing the problem, generating potential solutions, evaluating and selecting the best solution, and implementing that solution.

For structured problem-solving to be effective, it’s essential to understand the terms “problems” and “decision making”.

In 1910, the American philosopher John Dewey published How We Think. There are five phases of intellectual inquiry: recognizing a problem, defining the problem, developing a suggested solution, refining the suggestion and testing it. For each phase there are some questions that help guide you on what to do:

Define roles and communicate the process.
Frame the problem.
Explore potential solutions.
Decide on the best option.
Commit to a course of action.

In role defining you can use a simple ASCI framework – Approve, Support, Consult, Inform.

The formulation of the problem is often more essential than its solution, which may be merely a matter of mathematical or experimental skill. In the Solvable, Arnaud Chevallier and Albrecht Enders introduce powerful approach to framing problems that leverages the storytelling construct of Hero’s Journey:

The hero is you, the leader, framing and solving significant organizational problem.
The quest is the reason you need to go on the journey, in the form of a question that clearly defines the problem.
The treasure is the best possible solution, and the benefits of realizing it.
The dragons are the potential barriers you must confront and surmount along the road.

You should identify a set of criteria that are distinct, compact and reasonably comprehensive.

It is reasonable to separate the exploration of potential solutions from the evaluation of those solutions. Why? Because finding solutions to wicked problems often requires creativity, ingenuity and vision, while selecting among them is about hard-headed analysis.

Start by identifying the type of exploration in which you need to engage. When solutions are not obvious but are likely to exist, then your exploration is about efficient search. If you cannot find any good solutions, you need to break down the problem.

For assessing create a scoring system. A Columbia Business School case study suggests:

Define the dimension on which you will assess the options.
For each dimension rank your options from worst to best.
For each dimension create a scale from 0 to 100. Place your option on the scale.
Assign weights to the dimension in terms of their relative importance to your strategy.
Calculate total value for each option by multiplying score and weight.

It’s best to create a scoring system while framing the problem and not when you are evaluation your options.

The discipline of visioning

Visioning is the ability to imagine potential futures that are ambitious and achievable and then mobilize your organization to realize them. The discipline of visioning is about building bridges between potential futures and current realities.

A vision should answer question: Given what this organization has to do (the mission), given its priorities (the core objectives), and given how it expects to move forward (the strategy), what will it look like and how will people act when vision is fulfilled?

Vision is specific destination, a picture of a desired future, purpose is a general heading.

To create a shared vision, you should first develop a personal vision. In addition to being an achievable goal, it must be consistent with your leadership style and situational context.

According to David McClelland people are driven by the needs for achievement (the desire to compete, perform better or win), affiliation (to identify with a social group or be part of a team) and power (the search for status or control).

To galvanize people behind the vision, you must seek to achieve powerful simplification by communicating your organization’s future direction in straightforward, evocative terms.

Telling stories is one important way that leaders influence and inspire. Stories help create a sense of connection and build familiarity and trust in ways that data points cannot.

Leaders can deliver key insights using five classic story arche-types. These are love, redemption, rags to riches (underdog fighting adversity), stranger in a strange land and the holy grail.

Repetition can also make for persuasive communication. This is known as exposure effect.

Written strategies, compensation plans, measurement systems and annual budgets are powerful levers for influencing behavior, they push people in the right direction by setting expectations and defining rewards and advancement.

You can become better at visioning – through intentional observation, imaginative visualization and clarification.

The discipline of political savvy

Political savvy is the ability to navigate and influence the political landscape of organizations. It involves understanding the underlying power dynamics, the motivations and interests of different stakeholders, and the potential implications of various courses of action.

In seeking to influence the rules of the game it’s helpful to imagine you are a corporate diplomat. To become more politically savvy, you must build your capacity to diagnose political systems and develop strategies that advance your strategic objectives, internally and externally.

What does it mean to think politically about organizations?

The starting point is to visualize your business (and its external environment, too) as a collection of powerful actors pursuing agendas.

To achieve your objectives, you need to identify potential winning coalitions. Think too about potential blocking coalitions.

You need clear understanding of what you’re trying to accomplish, whose support is essential and how will you secure it.

Think in terms of framework of your needs, their needs and exchange (what are potential exchanges). Potential exchanges can be support, resources, status, appreciation and inspiration. Also think about situational pressures – forces that guide decision making.

Social psychology research has shown that people overestimate the impact of personality and underestimate the impact of situational pressures in reaching conclusions about why people act the way they do.

Once people believe that change will happen regardless of what they do, the game often shifts from outright opposition to a competition to influence what change will occur.

Create your influence map. Who is supportive, neutral or opposed.

Seven influencing tools:

Consultation – an influence technique that promotes buy-in because people feel invested in the outcome.
Framing – means using argument and analogy to articulate your definition of the problem to be solved and the set of acceptable solutions.
Social pressure – the persuasive impact of the opinions of others and the norms of the societies and identity groups that they are part of.
Choice-shaping – is about influencing how people perceive their alternatives. How can you make it hard for them to say no.
Entanglement – the idea that by progressing step by step, you can get people to go to places they wouldn’t go in a single leap.
Sequencing – it is about being strategic about the order in which you influence people to build momentum in desired outcomes.
Action-forcing events – those are approaches that get people to stop deferring decisions, delaying and avoiding the commitment of scare resources.

Developing your strategic-thinking ability

STC (strategic thinking capacity) = Endowment + experience + exercise.

Endowment is built by your genetics and upbringing. Experience is your involvement in situations that develop your strategic-thinking ability. Exercise is the mental work you do to build your strategic-thinking muscle.

It is possible to boost your brainpower to develop the six disciplines. This is due to neuroplasticity.

To develop your pattern-recognition abilities, focus on doing the following:

Learning about the underlying mechanisms.
Immersing yourself.
Engaging with experts.

To develop your system analysis abilities, focus on doing the following:

Understanding the principles of system analysis.
Practicing analyzing and thinking about systems.

You can develop your mental agility by:

Practicing level-shifting.
Engaging in activities that develop your game-playing abilities.

Take these steps to develop your structured problem-solving abilities:

Understand the principles of structured problem-solving.
Practice structured problem-solving.

You can boost visioning abilities through:

Understanding the principles of effective visioning.
Practicing microvisioning.

You can become political savvy by:

Observing and analyzing political landscapes.
Seeking to understand the dynamic of power and influence.

Strategic thinking skills will help you anticipate and respond effectively to changes in the external environment. It will also help you with innovations. It will prepare you for the growing importance of data and analytics. It will become increasingly important in the interconnected world.