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Wednesday, April 9, 2014

The Biggest Problem in Strategy? Mindset

A question in a LinkedIn forum asks what the biggest problem people haven't yet solved in strategy?

My answer: decision-maker mindset.

In one of the most famous business articles ever, Theodore Levitt wrote about the mindset of US railroad industry in “Marketing Myopia” (Harvard Business Review, July / August 1960):
The railroads did not stop growing because the need for passenger and freight transportation declined. That grew. The railroads are in trouble today not because that need was filled by others (cars, trucks, airplanes, and even telephones) but because it was not filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry incorrectly was that they were railroad oriented instead of transportation oriented; they were product oriented instead of customer oriented.
Take a more recent example, Blockbuster, which went bankrupt in 2011, closing its last stores in 2013. It didn't fail from a lack of intelligence. “The fascinating issue for me,” wrote Forbes blogger George Anderson wrote in Blockbuster Beyond the Grave “is that Wayne Huizenga and his executive team were well aware of the risks from digital distribution of media and discussed it at times.”

Given the lack of action, the Blockbuster executive mindset was clearly that not only would the near-term future be like the present, but also that they would have enough time to respond to a "real” threat, before a crisis hit. But by the time it did, it was too late.

Mindset is of course, useful. It helps us interpret the barrage of new information that bombards us daily. And it works, so long as underlying conditions remain essentially the same. But it often fails us in times of radical change (brought on by external factors such as changing market or economic conditions or new technologies, or internal decisions, such as launching new products or entering new markets). Unfortunately, senior executive decision makers, because of their long years of experience – they "know" the business, the customers, the competitors, the technology and the industry – are resistant to changing their mindsets.

So, to the question, the real challenge for strategy professionals becomes how to change decision maker mindsets. Unfortunately, most traditional “strategy” processes fail in this critical regard (we could have another whole discussion on whether most companies really practice strategy, or whether they practice planning and budgeting…). Given human nature, changing long- and deeply-held mindsets requires a crisis. As English author Samuel Johnson said, "nothing so focuses the mind as the possibility of being hanged in a fortnight."

But rather than awaiting a real crisis, forward-looking organizations find ways to create structured "crisis" experiences, where decision-makers collectively evaluate intelligence, develop new insight and assess the strategic and operational risks of changing customer needs, new forms of competition, changing technologies, new discoveries and emerging government policies.

This also means strategy professionals must change their own mindsets, from “producing” strategy documents and presentations and overseeing planning processes, to creating experiences that enable decision makers to create their own insights. Once they, and not the strategy professionals, “own” the insight, they will change their mindsets. And once their mindsets change, developing winning strategies becomes, if not easy, at least straightforward.  
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