Rich Horwath is a national thought-leader on strategy, having appeared on NBC, WGN, and FOX TV to discuss the strategic aspect of current issues. He is the founder and president of the Strategic Thinking Institute, a former chief strategy officer, and professor of strategy at the Lake Forest Graduate School of Management. Rich is the author of four books, the latest being Deep Dive: The Proven Method for Building Strategy, Focusing Your Resources, and Taking Smart Action, and more than 75 articles on strategic thinking. His work has been profiled in business media around the world, including Investor’s Business Daily and Forbes.com. Rich helps companies increase their organizational competency in strategic thinking and guides executive management teams through the strategy development process.
Morris: Was there a turning point (if not an epiphany) in your life that set you on the career course that you continue to follow now?
Horwath: When I was working as a chief strategy officer prior to founding the Strategic Thinking Institute, I was facilitating the strategy development process for a client team. I was chatting at a break with a mid-level manager, who looked me in the eye and very earnestly said, “I need your help. My boss said I needed to be less tactical and more strategic. But I don’t know how to do that.” It was at that moment I realized that no one had really created a roadmap to help people go from being tactical to strategic. Over the new few months, I found that this manager wasn’t alone, and in fact there were many people facing the same dilemma. It was then I decided to dedicate my life to providing that roadmap.
Morris: When and why was the Strategic Thinking Institute founded?
Horwath: The Institute was founded in June of 2002. The purpose of the organization since then has been to provide managers at all levels with the knowledge and skills to strategically lead their business. I believe that concepts change thinking and tools change behavior. To that end, it’s important to provide both frameworks and tools to enable managers to generate new insights and then practically apply them to their business.
Morris: To what extent (if any) has its original mission since changed?
Horwath: The original mission can be captured in the proverb, “As iron sharpens iron, so man sharpens his fellow man.” I find it fulfilling to help people sharpen their strategic thinking skills, because they can truly make or break someone’s career, company and life. While my research, writing and offering have grown exponentially over the years, my mission has stayed the same.
Morris: What are the most common misconceptions that executives have about what a strategy is and does? What in fact is true?
Horwath: We can begin with the premise that strategy is an abstract concept, like leadership or love. You can’t reach out and touch strategy. Because of its intangible nature, it is interpreted in many different ways, some of which can cause serious damage to a company’s financial and cultural health. The study by Matthew Olson showing how bad strategy is the primary cause of bankruptcy confirmed the fact that poor strategy can kill a company financially. What I’ve also seen over the years is the cultural toll a poor strategy can take. When a leader fails to set a sound strategic course for the business, it slowly extinguishes the morale and momentum of the team. Confidence is lost, doubt sets in, and ultimately fear of the company’s demise and losing one’s job weigh everyone down. Therefore, it’s important to ensure that everyone in the organization is working from a common or shared understanding of strategy.
There are several common mistakes when it comes to strategy. The first is confusing it with the other foundational planning terms, goals, objectives and tactics. Goals and objectives are what you are trying to achieve, while strategy is how you get there. In other words, strategy is the path — and sometimes resembles a bridge — that 3enables you to get there. Too often we view strategy that is actually a goal, such as “Become the market leader,” “Grow the business,” and “Reduce costs.” These are goals. How to reach these goals is the strategy. Strategy and tactics are often confused with one another. While they are both essential to achieving the goal(s), strategy is general in nature (abstract) while tactics are specific, or tangible in nature. When people are confused by the two terms, they can use the Rule of Touch: if you can reach out and touch it, it’s a strategy. Another troublemaker is the unwillingness to make trade-offs. Many strategies are bland, be-all-things-to-all-people, consensus-driven dribble.
Michael Porter once observed, “The essence of strategy is choosing what not to do.” A good way to test strategy is to determine what your nots are. That is, the offerings you’re not going to provide, the customers you’re not going to serve, and so on. The more disciplined a leader is in determining their knots, the greater their chance of success. If true trade-offs are being made, the strategy should cause you some anxiety. As Netflix CEO Reed Hastings said, “If you are not genuinely pained by the rise involved in your strategic choices, it’s not much of a strategy.” To that end, I define strategy as “the intelligent allocation of limited resources through a unique system of activities to outperform the competition in serving customers.” It’s using your time, talent and budget to provide differentiated value to the right customers.
Morris: Various research studies indicate that (on average) business leaders spend less than 10% of their time discussing strategy and many of them acknowledge that they do not even know what their organization’s strategy is. How do you explain this?
Horvath: An Olympic athlete has the discipline to invest far more time and energy into their training than the average athlete can. That’s why they’ve reached world-class status. The same applies to business. The great business leaders have the discipline to invest far more time and energy into strategic thinking and strategy conversations than the average leaders, which is one of the keys to separating themselves from the pack. Amazon.com CEO Jeff Bozos explained that members of his senior team spend four hours every Tuesday discussing strategy, and he expects that to happen throughout his organization. Many leadership teams don’t spend that much time discussing purely strategic issues all year!
In the U.S., we live in an action-oriented society. The motto “greed is good” popularized by Michael Douglas’ character in the film Wall Street, has been replaced by “speed is good.” People equate busyness with business, when in reality, activity doesn’t necessarily equate with effectiveness. It comes down to a manager’s determination to strategically drive their business, instead of allowing the business to drive them. Unfortunately, many managers have become addicted to the adrenaline rush of mindless reactivity.
Morris: What are the major differences between the Deep Dive methodology and all others?
Horwath: Most books and programs only address the first three levels of strategy: corporate, business unit, and functional group. In reality, these are all subsets of the most important level of strategy: YOU. The individual level is where strategy is actually created. Unfortunately, 90% of directors and vice presidents have never had any learning & development opportunities on strategic thinking. Unlike the formulaic business books that promise a secret recipe for success, the Deep Dive methodology first requires managers to diagnose their business. If you went to your doctor with lower back pain and she didn’t ask you any questions or take any tests, and then handed you a prescription, you’d think she was insane. Because in medicine, the adage is prescription without diagnosis equals malpractice. Yet, in business we violate this principle everyday. We advise against action without first diagnosing the given business situation to determine (a) if taking action really is necessary and (b) whether or not a specific action is appropriate.
The methodology also clearly distinguishes strategic thinking from strategic planning. Strategy development for many companies looks like this: a three-hour PowerPoint review of market share, sales numbers, and budget, a one-hour SWOT Analysis exercise and then the formation of subcommittees to go off and write the plan. That process is so useless the group may as well spend the time at a cocktail lounge performing karaoke because it least they’d have some fun and it would be about as effective. A recent McKinsey & Company study showed that the number one trait of executives in high-performing companies is the ability to generate insights. The strategic thinking phase of strategy development is a disciplined and methodical way for managers to generate new insights, new ideas, and new thinking that fundamentally shift the direction of the business. Such thinking challenges standing assumptions and forces people to make trade-offs. Without a sound strategic thinking phase in place, all you are left with is an organizational lobotomy.
Morris: In your opinion, who should be centrally involved in the formulation of an organization’s strategy? Why?
Horwath: There’s a potentially big difference between the strategy that an organization has written into its plan and what is actually occurring on a daily basis. In reality, an organization’s strategy is based on how people at all levels are allocating their time, talent and budgets. So, while it’s important to have the organization’s strategy developed by representatives from the different functional areas along with various levels within those areas, it’s also critical that mid-level and first-line managers are not seen merely as administrators when the strategy is implemented. Since they tend to be closest to the customer, they need to have the capability to understand what strategy is, and how to develop it for their levels of responsibility to fit within the organization’s strategy umbrella. The CEO that develops strategy and then hands it out like the Ten Commandments in a PowerPoint deck saying, “Go forth and strategize” may not be banished to the bowels of hell, but the business may end up there.
Morris: Once a strategy is implemented, how best to measure its progress or lack thereof?
Horwath: Strategy is always developed in pursuit of goals and objectives. So a primary measure of strategy is how well it’s helping the business to achieve its goals and objectives. That’s why it’s critical to have clearly defined objectives with quantitative milestones. Then the strategist must take into account the context of the business, stage of market maturity, competitive landscape, and customer value drivers to assess how the strategy is performing. Business strategy is often intended to produce growth and profits. Growth shows efficacy of the strategy and profits show efficiency of its execution.
Morris: Did you encounter any head-snapping revelations while writing Deep Dive?
Horwath: The proprietary research I conducted with 154 companies that showed only three out of every 10 managers are strategic certainly is a stunner. If only 30% of the managers in your organization are able to generate new ideas and effectively allocate their time, talent, people, and budgets, it has to be alarming. It’s no wonder we’ve seen the number of bankruptcies rise over the past few years. In a challenging economic climate, it’s no longer the survival of the fittest. It’s now the survival of the strategic.
Morris: Why did you adopt the diving metaphor and nomenclature that have such important functions throughout your narrative?
Horwath: I’ve always found analogies that link the abstract to the concrete are an effective means of explaining relationships. Since strategy and strategic thinking are abstract, I wanted to provide readers with a concrete way to understand the concepts. At the heart of strategic thinking is the ability to generate insights. An insight is not readily available because it requires knowledge and skill to be discovered. Insights tend to lurk under the surface of the business issues we see everyday. So the idea of going under the surface of an issue to reveal the business insight seemed to be conveyed clearly with the tangible subject of underwater diving, or going below the surface.
Morris: You suggest that there are four types of strategic thinkers: Beach Bums, Snorkelers, Scuba Divers, and Free Divers Briefly, what are the defining characteristics of each?
Horwath: Beach Bums are those managers who don’t contribute insights to the business. My guess is we’ve all worked with someone who had many years of experience, but simply didn’t add any new value to the business. The research shows on average 9 percent of managers fall into this category. Snorkelers are those managers who frequently offer tactical solutions to issues but their solutions don’t have a significant positive impact on the business. As the name indicates, they tend to do surface thinking and seldom get to the heart of an issue. Research shows on average 26 percent of managers are Snorkelers. Scuba Divers are those managers who can produce strategic insights for solutions, but require instruction and assistance to do so.
These managers can provide ideas that advance the overall success of the business, but need a setting such as a group strategic planning meeting to contribute. When these managers are thoroughly prepared with the proper data and market research prior to a meeting and then led through the meeting with frameworks and models, they can generate highly effective insights. However, because they only generate insights when heavily equipped, the insights are infrequent and tend to occur only in a meeting environment.
Study results show that, on average, 32 percent of managers are classified as Scuba Divers. The type of strategic thinker to which leaders aspire is the Free Diver who is the manager that generates effective insights to the business on a regular basis. While they use a portfolio of questions, frameworks, and models to guide their thinking, they are able to summon the appropriate tool and marry it to the right data to continually generate insights that transform the business. The research indicates that on average, only three of every 10 managers in an organization are Free Divers.
Morris: You also identify ten strategic thinking skills. Which of them do most executives seem to have the most difficulty mastering? Why?
Horwath: As part of my leadership development work helping organizations increase the strategic thinking capabilities of their managers, I’ve designed several assessments. These assessments help to form a picture of the manager’s strategic thinking baseline ability. In many organizations it is assumed that senior executives are strategic and lower-level employees are not. As you might imagine, solely using someone’s title to determine his or her strategic ability is as accurate as using a Hollywood star’s popularity to determine his or her knowledge of political issues. Based on the results from thousands of managers ranging from entry-level to the C-Suite, the average score on the Strategic Thinking Assessment is only 60 out of 100. Of the ten strategic thinking skill sets, the three areas that rank the lowest are strategy knowledge, resource allocation, and creating value. The other areas that executives have difficulty mastering are competitive advantage and innovation.
Morris: With regard to the three disciplines of strategic thinking, please explain the importance of each. First, Acumen
Horwath: Acumen is the insight: all great strategy begins with an insight, that unique combination of information or data to generate a new idea or new approach that adds value to the business.
Horwath: Allocation is the ability to focus resources, your time, talent, and budget by making trade-offs. Strategy is as much about what you choose not to do, as it is about what you choose to do.
Horwath: Action is the ability to execute strategy by focusing on what’s important to the business and not getting distracted by the urgent things that pop up on email and voicemail and take us away from what’s truly important.
Morris: What is the “principle of Competitive Exclusion” and what is its relevance to strategic thinking?
Horwath: Differentiation for competitive advantage in business has its roots in science. In 1934, Moscow University professor G. F. Gause published the results of a landmark study. He placed small animals in a bottle with an ample amount of food. If the animals were of the same genus and a different species, they were able to live together peaceably. However, if the animals were of the same genus and the same species, they were not able to coexist. This led to the Principle of Competitive Exclusion, which states that no two species can coexist that make their living in the identical way.
Open the newspaper and read about the companies that are struggling and it’s a good bet one of the reasons is their failure to heed the Principle of Competitive Exclusion. They are stuck doing the same things in the same way as their competition. Barnes and Noble and Borders — Borders bankrupt. American Airlines and United Airlines — United bankrupt. Ford and General Motors–General Motors bankrupt. And the list goes on. Strategic thinking requires us to not think about how we’re better, but rather how are we different in ways that customers value?
Morris: What is a “Strategy Print”?
Horwath: The StrategyPrint is a two-page business blueprint and serves as a real-time strategic action plan for a business. Having seen all too many strategic plans sitting in binders on shelves gathering dust, I developed the StrategyPrint as a convenient tool to help managers use their strategy to drive their daily activities. It can be used to capture the essence of the business and help cascade strategic direction throughout the organization. The StrategyPrint solves the challenge of linking the strategic plan to people’s daily activities by providing a concise and thorough document that is more functional than the traditional strategic plan in a binder.
Page one of the StrategyPrint captures key insights for the business regarding the four key components of business: market, customers, competition, and the company. The majority of these insights are developed on a continual basis through sound strategic thinking. Page two of the StrategyPrint transforms insights into the strategic action plan including the overarching strategy, business drivers, goals, objectives, strategies, and tactics. The result is a common framework that can be used throughout the enterprise to ensure that everyone is following a unified strategic direction.
Morris: What is a “Strategy Tune-Up”?
Horwath: The Strategy Tune-up is a periodic (i.e., weekly, monthly, quarterly) meeting with key personnel for strategy development and execution to review the context of the business. Just as auto shops run diagnostic checkups on vehicles, the Strategy Tune-up conducts a diagnostic checkup on the business. It helps us understand what’s changing and, based on those changes, what we do to modify the strategy. It is also valuable to know what’s working…and be able to prove it.
Morris: What is an “Activity Systems Map”?
Horwath: The Activity System Map is a visual representation of an organization’s strategy and the tactics that support it. It provides a thirty-thousand-foot view of the business by capturing the strategy and tactics, and the relationships between the two, on a single page. The Activity System Map consists of the strategic themes of the organization represented by large spheres, and the individual activities or tactics represented by small spheres. Between three and five strategic themes are appropriate to cover the primary hubs of strategy for a business.
Morris: In Chapter 6, you carefully explain several basic terms that are often confused. For example, vision. With a sentence or two, please explain its relevance to strategic thinking.
Horwath: We often hear strategy described as the “Big Picture.” In order to think strategically and piece together that picture, we need to develop and understand the business purpose.
Morris: In your opinion, can almost anyone become a “Free Diver”? What specifically does that process of development require?
Horwath: I don’t believe people are born strategists. Being a “Free Diver” simply means you’re learning about your business each day and more importantly, recording and acting on those new insights. Too often people are labeled as being either “tactical” or “strategic.” Those shouldn’t be mutually exclusive and in fact, great leaders effectively navigate between the two areas. Apple CEO Steve Jobs is recognized as one of the most strategic business leaders of our generation, yet he’s fully aware of the tactical issues that help or hinder Apple’s products and services.
Morris: Someone purchases a copy of Deep Dive, re-reads it, and becomes committed to building strategy, focusing resources, and taking smart action. Where to begin?
Horwath: Unless you work alone, it’s important to share your knowledge and skills with others in your group. There’s nothing more frustrating then learning new skills and tools while being in an environment that doesn’t recognize them or allow them to flourish. So begin by helping your team to understand the basics of strategy, including the difference between and among goals, objectives, strategies and tactics and how to effectively express them in writing. You’ll also want to baseline where your organization or group is when it comes to understanding strategy (diagnosis) and from there hone in on the areas that can make the greatest difference.
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