STRATEGIC-LEADERSHIP: 4th Pillar of Excellence
To lead through the uncertainty of the marketplace, leaders need to think strategically in the context of global trends shaping the world. The worldwide adverse economic contagion effect of Asian financial crisis of 1998, failure of global banking institutions in 2008, the upheaval in the Middle East, and the influence of the rising economies of Brazil, Russia, India, China and Indonesia on the international socio-economic landscape makes it quite evident that leaders, of all people, can ill-afford to constrain their thinking divorced from international political, social, economic and technological agents of change. It is rightly said that one bad assumption can even bring down an empire, so strategic thinking, definitely, is a hallmark of a great leader.
Business Understanding
Leaders not only require a solid understanding of their own field of study, but also of core business concepts in marketing, finance, operations, HR, and economics to offer viable strategic solutions. Business concepts are interwoven in the fabric of an organization’s day-to-day operations – profit or non-profit. To be in a leadership role at the community, organization, national or international level, the foundational concepts in business lay the framework for making effective strategic decisions. Having a solid foundation in core business concepts cannot be overstressed for a leader.
Core Business Concepts
Finance
Interpretation of Financial Statements, Time Value of Money, Capital Budgeting, Cost of Capital.
Marketing
4 P’s of Marketing, Marketing Mix Decisions, Value Proposition, Integrated Marketing Communication, Consumer Decision Making Process.
Finance
Process and Capacity Design, Order Winners and Qualifiers, Demand Forecasting, Total Quality Management, Inventory Management.
HR
Compensation and Benefits, Performance and Talent Management, Employment Law, Workforce Planning, Recruitment and Selection.
Economics
Business Cycles, Demand and Supply, Recession and Inflation, Monetary and Fiscal Policy, Capital Markets, Economic Indicators.
It is widely believed that Shinzo Abe, the Prime Minister of Japan, lost re-election because he showed scant understanding of business economics during his first term in office. Then during his term out-of- office, he was tutored on the economics of running a country. Later he stood again and won the elections to lead his country. His first term, however, was a debacle given his lack of business understanding!
Critical Thinking
There are many different definitions of critical thinking, but the main objective is to decide what to believe or do through reason and reflection. When leaders fail to use critical thinking, they start to delude themselves.
The judge told Boris Berezovsky, a business tycoon, in the London courtroom why his $5.1 billion lawsuit against a former business associate had failed so badly. She said he had “deluded himself into believing his own version of events.”
Source: The New York Times 2013
People Delude Themselves All the Time!
The decisive year never came, and in the end the generals packed their bags and left!
To think critically, leaders need a firm grasp of the eight elements of critical thought; otherwise, it does not take long for delusion to set in!
Delusion in the Business World
In the run-up to the financial crisis of 2008, International Monetary Fund (IMF) said “global economic risks had declined” and that “the overall U.S. economy is holding up well and the signs elsewhere are very encouraging.” On September 12, 2008, just three days before the crisis began, J.P. Morgan, arguably the United States’ premier financial institution, projected that the U.S. GDP growth rate would accelerate during the first half of 2009. IMF, J.P. Morgan and other professional analysts chose to believe their own version of events and ignore the 50 of the top U.S. newspapers who ran a combined 268 stories referencing a “housing bubble” in 2003. By 2005, they had run an additional 1,977 such stories. This is called lack of critical thinking.
Systems Thinking
A newspaper once published a cartoon in which a man sitting in an armchair pushes over a giant domino encroaching upon him from the left. “At last, I can relax,” he tells himself in the cartoon. Of course, he does not see that the domino is toppling another domino, which in turn topples another, and another, and that the chain of dominoes behind him will eventually circle around his chair and strike him from the right.
A typical solution feels wonderful when it first cures the symptom. However, it is only a matter of time before the problem returns, but this time it may be even worse than the original. We fix one problem and create another, and no wonder today’s problems are yesterday’s solutions. Leaders have to learn to make intervention at the systems level to avoid making today’s solutions tomorrow’s problems. Here are a few examples to consider pertaining to U.S. business sector.
- Deregulation of telecommunications in 1996 led to an overinvestment bubble, which burst in 2001.
- Deregulation of electricity in California led to market manipulation, which hugely inflated energy prices to consumers (and Enron’s profits) at the expense of Silicon Valley, heart of US innovation.
- Deregulation of banking —notably the repeal of the Glass-Steagall Act of 1933, which had separated investment from commercial banking—set up conflicts of interest between the two branches and led to corrupt synergies between banks and industries.
- Lax regulation of the accounting sector led to the boom in share options, which greatly boosted managers’ pay and artificially inflated company profits. (By 2000, American CEOs were paid 500 times more than the average employee.)
Risk Management
Risk can simply be defined as the chance that some event other than the expected will occur. To manage risk one has to understand the probability and impact of an event, and then take an appropriate course of action. Examples demonstrating the importance of risk management:
On March 24, 1989, a tanker ran aground in Alaska, spilling 11 million gallons of crude oil. The spill cost Exxon Mobil more than $3billion in cleanup operations and settlements.
Minutes before the tanker struck the reef the captain told the third mate to make a right turn to avoid the reef and then he went downstairs. The turn was never made.
If the captain had done risk analysis and asked the question, “What would be the impact if the Third Mate does not make the turn,” then he probably would have stayed to supervise the turn. When the impact is so high, you simply don’t put a novice third mate at the helm!
Brazil tycoon Eike Batista’s empire first soared then melted into bankruptcy. He certainly could have done a better job managing risk!
Historical and Global Perspective
Philosopher Arthur Schopenhauer once observed: “Every person takes the limits of their vision for the limits of the world.” To avoid constriction of one’s worldview, leaders need to enrich their vision with a global perspective since we now live in an era in which global issues strongly affect local decisions. Global warming, international financial crisis, nuclear proliferation, pandemics, human trafficking, poverty, terrorism, civil wars, refugee crisis, breakdown of old political order and world peace are some of the universal issues that now affect our very human existence. Leaders, therefore, cannot constrain their thinking divorced from international political, social, economic and technological agents of change.
Where global perspective broadens our vision of the universal issues, historical perspective enhances our understanding of the circumstances that contribute to the outcome of an event. Without historical context, it is easy to make decisions based on misleading conclusions. This is the reason why it is so aptly said that those who do not learn from history are condemned to repeat it and drag the Trojan horse within the safety of the city walls.
The Trojan Horse was a deception used by the Greeks to enter the city of Troy and win the war. After a futile 10-year siege, the Greeks constructed a huge wooden horse, and hid a select force of men inside. The Greeks then pretended to sail away, and the Trojans pulled the horse into their city as a victory trophy. That night the Greek force crept out of the horse and opened the gates for the rest of the Greek army, which had sailed back under the cover of night. The Greeks entered and destroyed the city of Troy, decisively ending the war.
To develop a historical and global perspective, we will begin by doing a survey of world history and delve into foreign affairs to understand how global issues affect local affairs and our way of life. Otherwise, without these two perspectives, one becomes a frog in a well that knows nothing of the great ocean.
Strategic Planning
Strategic planning allows us to envision our future and develop the necessary operations and procedures to achieve it. This bear has the right idea. It has chosen a strategic spot to achieve its goal.
There are many definitions and models of strategic planning, but regardless of their differences, the following questions have to be addressed:
Vision
What do we want to achieve long-term?
Situation Analysis
Where are we today?
Goals
What milestones do we want to accomplish to achieve our vision?
Action Steps
What steps do we need to take to accomplish our goals?
Success Criteria
How do we measure our success?
Many organizations did not survive in the marketplace because they failed to plan strategically and realize that the competition is coming from above, not from sideways – Netflix with its mail distribution model put Blockbuster Video out of business.
Elizabeth the 1st of England
Strategic Leadership at its Best
When Elizabeth ascended the throne in1558, England was an economic and cultural backwater, impoverished, burdened by runaway inflation, cursed with a debased currency, possessing neither an army nor a navy to speak of, torn internally by religious dissension propelling the country toward civil war, faced with enemies in Scotland, plagued by rebellion in Ireland, eyed greedily by the French, the Spanish, and the Holy Roman Empire, its pitiful throne contested by more than a few pretenders. Viewed as a business, it was a failing business. Viewed through the eyes of twenty-five-year old Elizabeth, it was a business in need of a turnaround. When Elizabeth died in 1603, having reigned for forty-five years, England was the richest and most powerful nation in Europe and well on its way to becoming the one of the greatest empires the world would ever know. Elizabeth could not have done this without strategic leadership!
