Strategy Talk with Christian Underwood and Prof. Dr. Jürgen Weigand
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 at what points in the process creativity is required.
Strategy work is not pure number crunching - even if number-based analytics is necessary to get an overview of the company's own realities. In reality, however, many strategists often get lost in the number jungle, search endlessly for information and do not know when it is time to start implementation. Furthermore, it is often forgotten that in addition to analytics, rationality and creativity also play a decisive role in a strategy process. Finding the right balance here presents many companies with a challenge that seems incredibly large. The question arises: Can strategists do everything at the same time? Can they be number-based and rational on the one hand, but also think creatively on the other?
Christian and Jürgen answer with a resounding "YES! In this episode, they take the mystery out of the concept of creativity, make it tangible, and give even the rationalists among you tactics for thinking creatively in the strategy process, creating innovations and achieving 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 Ltd: 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?
Of course, strategy is not just number crunching. Analytics is necessary, but it also requires creativity as well as the intuition to approach the right thing and to be on the right track. When Christian thinks back to his time at university, he associates strategy with a lot of calculation and analysis. This also takes an important part when you want to get a picture of your own reality. This is where you need that clarity. However, one can almost not save oneself from models and methods to do this.
In this podcast, Christian and Jürgen essentially talk about strategies in the business sector, which is largely dominated by numbers. Many people are afraid of analytics, because that means you have to deal with numbers, calculate and compare what you learned at some point in school or university. This is inevitable if you want to know how well you are performing and where you are running. So a strategist has to be skilled in dealing with numbers, know what it takes and what quantitative measurement 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 the gut. How big the theoretical market potential is in the end is not known for sure.
Dealing with incomplete information:
We live in a world full of uncertainties. Information is not only a fetching debt, but mostly incomplete and not perfect. If you want to apply theory, you have to be aware of that. Market shares can be estimated on the basis of gut feeling or by asking providers who collect and prepare data accordingly. Before doing so, one should therefore define in which order of magnitude of information one wants to think. For this, one needs data, because data determine the results. Of course, one can distance oneself from numbers and say that qualitative indicators are just as important, but often there is a sense of subjectivity associated with qualitative indicators. Numbers, on the other hand, give the impression of being objective. So both are needed, and as a strategist, you should deal with them intensively.
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 have to develop a feeling for whether the analysis is good enough and find a point in time when the analysis phase is complete and no more influencing factors can be taken into account. To do this, one 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 what the best and worst case scenarios are and where you are likely to be with your company. Delineating the best and the worst is the art here. At this point, you've done enough analysis. There are three scenarios to work with, and then you should start implementing.
Situation analysis in the strategy frame:
Christian works in consulting with the strategy frame, which consists of three pillars - the situation analysis, the target picture and the fields of action.
Situation analysis is relevant for analytics.
Here, the company is centrally located and the external factors are positioned around it, such as the customers. This is often already mixed up in the company reality. One mistake, for example, is to only survey customers who are already satisfied today. These probably rate you very highly. However, this is then methodically incorrectly surveyed.
You should definitely consider these essential factors in your analysis:
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New customer needs
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Development of the markets
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Competitor lineup
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Performance of competitors on the markets
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Trends
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Industrial Dynamics
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Rules of success
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General environment in which you move
Subsequently, one should deal with one's own realities and look the truth in the face. How is one positioned oneself? As a strategist, you should move within this framework.
Different levels of the strategic environment:
One level is the customers.
Here, the following questions should be asked:
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Who are the current customers?
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Who were past customers that were lost?
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Who could be future customers?
In most cases, this is where the colleagues from Marketing Research become active, determining who the customers are and how great the potential is.
This would be called the micro - the market level. Above that, there is the industry level. An industry can have many different markets.
At the industry level, the following questions should be asked:
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Who are the direct competitors?
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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 perceive.
These include, for example:
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Tax increase
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Happenings in international trade
These factors may not play a direct role, but may lead to trends that become relevant in the future.
Current example (this podcast was recorded on 22/02/2022 before Russia invaded Ukraine):
If Russia is a large market of one's own company, it is questionable whether one will be able to sell one's products there tomorrow.
The EU in Brussels is discussing sanctions for Russia. This is a double-edged sword. If you sanction Russia, there are of course producers from the EU and other countries behind it who depend 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 desired.
Creativity as part of strategy:
Reality shows: If you ask customers about their competitors, you'll 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 and foremost, homework must be done and clarity gained about the status quo. Where are you moving? Why are you moving 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 other person's shoes. 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.
A master at "connecting the dots" was Steve Jobs. 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. But Steve Jobs intuitively felt quite early on that if you recombined the components, you could create something new. That was an essential part of Apple's strategy. In most cases, this is the difficult part, where you also encounter the most prejudices.
Humans 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 saber-toothed tiger, for example. Creative problem solving is given to each of us.
In the meantime, various methods exist for becoming creative, such as design thinking workshops, brainstorming, etc. But if you look at the stories behind innovations and innovators, you often find that the sparking idea didn't come from a brainstorming workshop, but from the shower, skiing or the beach. This is where things that are actually already sorted in the brain come together, but suddenly come together in a different way. In moments like in the shower, the realization of how these parts could fit together is often found.
Carl von Clausewitz, one of the great strategic thinkers of a military nature, has also already described four elements in this regard:
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Other combination of examples or elements from the past of influences consumed, for example, when reading in the newspaper
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Open approach to problem solving and not immediately fall back on experiential knowledge or knowledge from the past. Do not have a ready-made solution at hand
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Combination of two different things that together make something new
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Seeing a solution in the inner eye and also understanding it as such
These 4 aspects can also be transformed into innovation methods for teams.
In this context, a literature recommendation is made. 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 also have to be able to break away from the past. Especially if the past was very successful. Past experience can of course be supportive, but if you want to think ahead, you have to try to switch it off as much as possible. Experiential knowledge can be very positive, but it is also very inhibiting for innovation.
If you cannot switch off the experience knowledge alone, you should try it in the 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 territory and then leave these path dependencies. Path dependencies lock you into a certain path. This happens, for example, through investments such as large machines that were made in the past. Also procedures, with which one is very familiar and from which one believes to be able to be successful also in the future, represent a danger. Especially if one is too sure and thinks that the previous approach explains the success (success brings success). When analyzing history, also in the academic field, one realizes relatively quickly 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 not extricate themselves. This is also referred to as the arrogance of success. In this situation, it becomes very difficult to turn things around and steer in a different direction.
The digital transformation is currently causing great difficulties for many companies, especially in terms of rethinking. Other approaches are necessary. Suddenly, as during the Corona pandemic, workplace conditions change. One is less under the direct control of the department head. These are challenges that are very big, especially for medium-sized companies.
Invent it yourself or outsource it?
In the past, people invented a lot of things themselves. The German engineering approach is that you develop things yourself in your small workshop. But reinventing the wheel over and over again is no longer appropriate or sufficient in today's world.
Jürgen is an economist by training, and economists advocate the division of labor. In the pandemic, however, we learned that the division of labor also harbors dangers. 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 have to keep the critical know-how in your own hands. So it doesn't always make sense to outsource IT people 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 done, you have more clarity, insight and visibility into what is going on inside and outside the company. Now it is a matter of designing a target picture. This is where linguistic creativity and precision are needed to describe the right thing, to be bold and to articulate or address things in a winning and value proposition - customer value propositions - that challenge and push you to move toward something new. Often, the process locks in what's already there. It's said that it's always been good. The world outside is changing, but we need to give people stability. Certainly stability is sometimes helpful, but it doesn't work about manifesting the old in the new target picture, because the goal here is to achieve a target state that requires a lot of creativity even 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 one's own strategy or has one simply been lucky under certain circumstances because others have operated less well or circumstances have led to it. Here truth is the decisive factor to the next step, namely the formulation of a target picture, which defines where you actually want to go. Of course, there are big words like vision, etc. But in the end, it is about what actually is one's destination port. You embark on a journey on which you want to take everyone along internally. You can only sell and communicate this journey 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 have to focus and be clear about what you are going to do, where you want to go and what things you are not going to do in the future. On the side of the road and on the shore there are always many temptations, small oases to which you would like to turn. The trick is to say that you won't stop here.
Does luck play a role in management?
Even if you are a great strategist, many different factors always play a role. This also includes a 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 one has all decision-relevant information at any given time and is able to identify the best, second-best, third-best (...) solution. In reality, however, it does not work in this way. There are always only parts of a larger system and one can always only observe a small section and influence this small section. If you change all these system properties, then you have to change yourself as well. Those who recognize this quickly enough and know how to counteract it are the luckier ones. Others may wait too long and not manage to make this turnaround.
Balance between rationality, analytics and creativity:
The balance between rationality, analytics and creativity poses major challenges for companies in the strategy process.
Christian and Jürgen conclude with two important tips that you can follow in the strategy process:
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You should always take that step backwards and look at the big picture. You shouldn't lose sight of the big picture and be in love with details. Especially if you're a numbers cruncher at heart, you have to learn to take a step back and say: I'm now looking at the whole picture.
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You should bring someone on board who actually has no idea about the matter or the details and looks at it from the outside and checks whether it makes sense to him or whether it is just the same thing that has been done before. In other words, bring in a neutral party, a neutral observer who can simply express his opinion - free of corporate responsibilities and ask the questions that no one else dares to ask.