TECHNIQUES FOR IMPROVING STRATEGIC THINKING

by John Voyer, Associate Professor of Business Administration, University of Southern Maine

Introduction

What is business strategy? Most people think of strategy as a fairly "hard" analytical product, usually expressed in a document -- the strategic plan -- that articulates the firm's mission, objectives and intended courses of strategic action. But there are other, more productive ways of thinking about strategy. As Henry Mintzberg says in The Rise and Fall of Strategic Planning, strategy is "a pattern in a stream of action" (Mintzberg, 1994). In other words, strategy is not an object or "thing," it is action. But where does this action come from?

Many people would answer "strategic planning," but research shows that, in practice, strategic planning is used mostly to program and sequence actions developed by other means, typically entrepreneurial or innovative (Mintzberg, 1994). These programming and sequencing functions are obviously worthwhile, but used this way strategic planning is not the deep, fundamental process that it is often touted to be. Is there a source of strategic action that is deeper than planning?

Many observers of organizations think that organizational action (which would include strategy) is based on mental models. In The Fifth Discipline Fieldbook Peter Senge and his colleagues define mental models as "images, assumptions, and stories which we carry in our minds of ourselves, other people, institutions and every aspect of the world" (Senge et. al, 1994). We act on the basis of what we think, that is, our mental models. Learning occurs when we change what we think after we see the consequences of our actions. If we never change our thinking, we will never change our actions. If we never examine the results of our actions, we will never change our thinking. Either way, learning ceases, and the possibility of meaningful strategic change dwindles.

To develop innovative business strategies, managers must do one of two things. They may take new actions and think differently after assessing the consequences of those actions. Or they may think differently and take new actions based on the new mental models. With whichever method managers choose to start, they must keep the "learning loops" going by alternating the methods. For example, thinking differently would lead to new strategy, the results of which would change thinking, which would lead to even more strategic change, and so forth. In this article I discuss three methods that managers can use if they choose to begin this process by changing their thinking. All three methods can help them get direct insight into personal and organizational mental models of how the firm and the industry operate.

Strategic Dialogue

As Bill Isaacs points out in "Taking Flight: Dialogue, Collective Thinking and Organizational Learning," dialogue is a method of group conversation designed to increase inquiry into mental models and their underlying beliefs and assumptions (Isaacs, 1993). In generative dialogue there are no agendas and no minutes, but in strategic dialogue the group focuses on a specific question. A group of invited participants sits in a circle and after some initial introduction to the concept of dialogue they "check in." This involves taking turns (no one else can speak until everyone has spoken) giving their initial thoughts around the questions, "If there were one core question that underlies all the strategic challenges you face, what would it be? Why is that question important to you?" The comments are recorded on flip charts by a designated, nonparticipating scribe. After the check in, participants would take an observational "tour" of the comment recorded during the check in. The group would then continue the dialogue process (with appropriate breaks), with consultant recording and guidance, until it was no longer productive. During the dialogue, participants follow these ground rules:

• Speak to the center -- don't address your comments to specific others (this is easier to do as a group gains experience with dialogue)
• LISTEN!!
• Postpone judgment
• Suspend certainties
• Inquire into assumptions
• Listen to yourself (speaking and thinking)
• Balance advocacy and inquiry (this means to go ahead and speak your mind [advocate] but keep an open mind and truly try to understand other positions [inquiry])
• Check out (same format as check in, only with less emphasis on answering strategic questions)

Strategic dialogue is not about agreement or consensus. It is about listening for deeper understanding and insight. It is important to emphasize that what is sought here are not action plans (although they may be outgrowths of the process) but understanding of and greater insightinto the mental models of the participants (usually the management team) and how they influence strategy. The outcome of the process is not a tangible product but an alteration of and different understanding of both personal and collective mental models. If mental models affect action, then strategic action after dialogue should also be different. A good guess for the total length of this process is about three days, with at least two being consecutive.

Scenario Planning

Experience with forecasting has shown that trying to predict the future is usually futile. But thinking about the future, with the aim of gaining insight about how the firm should act today, can be very valuable. One tool for doing this is scenario planning. In The Art of the Long View, Peter Schwartz says that scenarios, as defined in this context, are "a tool for ordering one's perceptions about alternative future environments in which one's decisions might be played out. Alternatively: A set of organized ways for us to dream effectively about our own future" (Schwartz, 1991).

Scenarios are stories, developed in a disciplined way, that help make companies more prepared for the future. This happens in one of two ways. First, a company sees the need for decisions it might otherwise not have seen. Second, a company's mental model is enriched and made more flexible so that it has greater capacity to react regardless of what future unfolds. Without going into great detail, the process of scenario planning has eight steps:

1. Identify the focal issue or decision.

2. Identify key "local" factors influencing the decision.

3. Identify driving forces, predetermined elements, and critical uncertainties in the macroenvironment.

4. Rank the factors and trends by importance and uncertainty.

5. Select the logics of the scenarios.

6. Flesh out the scenarios (that is, actually write out the stories for participants to ponder).

7. Identify the implications of the scenarios (for present and perhaps future action).

8. Select leading indicators and signposts (to be able to guess, at a future point, which scenario, or combination of scenarios, is "happening").

Steps two and three, and perhaps part of four, typically involve some data gathering by the management team. The rest of the process is group conversation, perhaps even utilizing a dialogue approach. The written scenarios appear to be the tangible output of this process, but the more significant outcome is nontangible and similar to that obtained through strategic dialogue, namely, altered and more flexible mental models. A reasonable guess is that the meeting time would be about three to five business days, spread out over a couple of months, along with consultant time in between.

System Dynamics Modeling

Businesses and their environments are complex systems. Many problems in business are created by feedback loops linking elements in those systems. Managers are often unaware of these feedbacks, hence they never truly address the root of the problems. System dynamics modeling is a way of having managers understand the feedback links in the systems they have created. This tool is part of systems thinking as discussed by Peter Senge in The Fifth Discipline (1990). To use this successfully as part of strategy development, managers focus on a number of important strategic problems. Once a problem has been mapped and modeled, managers can use the model to identify points of "leverage." That is, by simulating the system, they can get an idea of which policy changes will have the greatest effects.

The process begins with instruction in a technique called causal loop diagraming (Richardson & Pugh, 1981) used to map feedback loops. The most important elements of causal loop diagrams are links and loops. A link is a depiction of a cause and effect relationship, and may be either positive or negative. Here are examples of each kind of link:

Feedback loops are interconnected sets of links, which also may be positive and negative.

After this kind of introduction to causal loop diagramming, a strategic problem would be identified. The sequence of events for mapping each problem would be:

1. Development of a detailed description of the problem.

2. Generation of "reference modes," which are graphs describing the behavior over time of the important variables in the problem.

3. Using links and loops as building blocks, the group develops a causal loop diagram designed to explain how the reference modes are created by feedback loops in the system.

A typical causal loop diagram will have anywhere from twenty variables and two loops to one hundred variables and ten (or more) loops. Insight can be great even with the smaller number. This process gets the members of the group thinking systemically, that is, thinking in terms of how elements of company practice are interconnected. The discipline of thinking this way is often very revealing.

Should causal loop diagraming, by itself, produce sufficient insight, the group may move immediately to a discussion of policies that might be used to solve the problem. However, a causal loop diagram is a good basis for a mathematical system dynamics model, created with the assistance of a consultant. As mentioned earlier, a model allows participants to simulate the effects of various policy or strategy changes. The insights and mental model changes generated from such a model can be greater than those gained from causal loop modeling alone.

A system dynamics modeling effort could be done in one or two working days if it stops with the causal loop diagram. If there is interest in a mathematical model, there would be a time gap between the causal loop diagram and the first model. The amount of time for the modeling could vary from between five to ten business days, most of it modeler time. However, experience has shown that the payoffs can be great. In any case, the time to stop either process is when no further insight is being gained through the effort.

Combinations

These approaches can be used alone or in any combination. They have been discussed in the approximate order in which they should be used if all three are tried. If two are tried, strategic dialogue should probably be one, and the first, of them. The spirit of inquiry encouraged by dialogue greatly facilitates the other two approaches. System dynamics modeling should always be employed last if multiple methods are used since the causal loop diagraming will be greatly aided by prior use of either of the other methods.

Conclusion

As Henry Mintzberg has said, "All [business] definitions, no matter how tangible, are ultimately concepts that exist in the minds of actors and observers" (Mintzberg, 1995). Concepts are a kind of mental model. Mintzberg's statement therefore implies that a reasonable first step in making strategic change is to change mental models about the business. This paper has discussed three techniques -- strategic dialogue, scenario planning, and system dynamics -- that managers can use to access their mental models and gain insight about them. Dialogue helps groups of strategic actors in a firm to inquire into and deepen their understanding of collective mental models, setting the stage for changing them. Scenario planning encourages more flexible thinking about the future, making flexible action more likely, both in the present and in the future. System dynamics modeling facilitates insight into the systemic nature of problems and helps managers find leverage points in those systems by simulating strategy and policy changes. All three methods have the ultimate aim of helping managers change the way they think and thereby helping them take innovative strategic action.

Opportunities for Further Reading

Isaacs, William N. "Taking Flight: Dialogue, Collective Thinking, and Organizational Learning." Organizational Dynamics 22:2 (Autumn 1993): 24-39.

Mintzberg, Henry. The Rise and Fall of Strategic Planning. New York: Free Press, 1994.

Mintzberg, Henry. "Generic Strategies for Extending and Reconceiving the Core Business." In The Strategy Process: Collegiate Edition, ed. Henry Mintzberg, James Brian Quinn, and John Voyer, 326-30. Englewood Cliffs, N.J.: Prentice Hall, 1995.

Richardson, George P., and Alexander L. Pugh. Introduction to System Dynamics Modeling.Portland, Ore.: Productivity Press, 1981.

Schwartz, Peter. The Art of the Long View. New York: Currency, 1991.

Senge, Peter M.. The Fifth Discipline: The Art and Practice of the Learning Organization. New York: Currency, 1990.

Senge, Peter M., Charlotte Roberts, Richard B. Ross, Bryan J. Smith, and Art Kleiner. The Fifth Discipline Fieldbook: Strategies and Tools for Building a Learning Organization. New York: Currency, 1994.