Why Most Companies Aren’t Really Strategic - Rich Horwath

Speaker A: Foreign. Mhm. And welcome to behind the Numbers. This is the program where we go beyond the data, beyond the spreadsheets to really understand what drives business success.

Speaker B: Dave.

Speaker A: I'm, um, Dave Bookbinder. I'm known as a business valuation expert and bestselling author. And as always, I thank you for joining me. Today I am joined by Rich Gorewath, who is founder of Strategic Thinking Institute, a, ah, leading expert on helping leaders move from reactive management to disciplined strategic thinking. We're going to be talking about what strategy really means in practice, why it often breaks down inside organizations, and how leaders can build stronger decision making at the top. So let's get into it. Rich, welcome to behind the Numbers.

Speaker B: Dave, great to be with you today. Thanks for having me on the show.

Speaker A: It's my pleasure. Why don't you tell the audience a little bit more about you that I didn't hit in the, uh, the overall intro here and we'll get into it.

Speaker B: Yeah, sounds good. So I actually started my business 25 years ago and it was based on a single question. I was, uh, doing strategic planning. We were leading an off site meeting, we were having a coffee break and one of the managers came up during the coffee break and he said, you know, Rich, I just had my performance review and my boss said, I'm too tactical, I need to be more strategic. He said, how do I do that? And so, Dave, that was kind of my light bulb moment. So I said, well, that's a great question because most of the books at that point, Dave, were really around corporate strategy, business unit strategy, multi, uh, corporation strategy, but nothing really for the individual person to be strategic day in and day out. And so that was really what, what ignited my passion for helping leaders think, plan and act strategically. So in the 25 years that's been, my motivation is to give people a roadmap from being more tactical and reactive to more proactive and strategic, to really be able to use their time, their talent and their budget to achieve the goals that they've set.

Speaker A: Yeah, I appreciate you sharing that you're a little humble because I, uh, know for a fact that you've been referred to as one of the world's foremost experts on strategic thinking. So if we strip away the various frameworks, how do you personally define being strategic in business today?

Speaker B: Well, it's funny, Dave, you asked that because I did look that up years ago. I said, well, what is strategic exactly? Because people put the word strategic, as you know, in front of lots of other words. Strategic objectives, strategic imperatives, strategic goals, and so I said, what does that mean? So when you look that definition up, typically it says of or relating to strategy, which you know by, in and of itself is not super helpful. So when I've done the research over the last 25 years, really how I define strategic is possessing insight that leads to advantage. So I define strategic as possessing insight that leads to advantage. So when we use that definition, when we think about things like a plan, can a plan be strategic? Sure. A plan can possess insight that helps you lead to advantage. Can a person be strategic? Yes, a person can possess insight that leads to advantage. However, a lot of other things get filtered out. Strategic objectives. An objective is not going to possess insight. Typically it's a number and timeframe that you're trying to hit. So, and again, the core aspect of strategic, as we talk about, is possessing insight. And I define insight very simply as a learning that leads to new value. So really, when you are strategic, you're continually bringing new learnings that add value to yourself, to your team, to your organization, and to the customers that you serve.

Speaker A: Yeah, you're right, because I've seen it throughout my career too, where people just slap the word strategic in front of another thing and think, suddenly that's real strategy. What are some of the common misconceptions that, that you've seen executives having about actual strategy?

Speaker B: Well, the first is mistaking strategy for other things. And, you know, one of the. One of the most important aspects is having a common language for strategy. Do we have an understanding across the business as to what strategy really is? And so oftentimes we see strategies written in the Wall Street Journal or Businessweek or Forbes that we want to be number one market, we want to be the premier provider of X. And typically those are aspirations, they're not strategies. So we need to do a better job as leaders of really clearly articulating what is a strategy. And then what are things that are aspirational? Goals, objectives, uh, mission and vision often get confused for strategy as well. You know, mission and vision being your purpose. Mission is your current purpose. Uh, vision is your future purpose. And so strategy really is how. How are we going to get to our goals and objectives? How are we going to achieve the vision that we're trying to hit in the next 10 to 15 years? So I'd say that's probably the biggest thing is just really having that common language for strategy. So I'd ask all the listeners out there, you know, as you think about your organization, if you sat down in your next staff meeting and asked Everyone to define strategy. Would you get the same definitions?

Speaker A: Yeah, not likely. So where does it break down? Is it in the thinking? Is it planning? Is it execution?

Speaker B: Well, the biggest thing I see is the thinking initially. You know, let's think about a funnel for a moment. A, uh, regular funnel at the top of the funnel is strategic thinking. Towards the neck of the funnel is strategic planning. And too often people confuse the two or they intermix the two. Strategic thinking is when we're generating new insights, new ideas, new approaches, new solutions, new ways to bring value. Strategic planning is when we take those insights and we channel them into an action plan designed to achieve our goals and objectives. And the planning piece is really where we start to allocate resources, time, people, budget to specific initiatives that are designed to get us there. So again, for listeners out there, I'd think about that funnel. Are you focusing on the top of the funnel as much as the neck of the funnel? So are we giving people time and space and tool to generate new ideas, new thinking? Because, Dave, if we don't do that, then we're following Einstein's definition of insanity. We're doing the same thing over and over again and expecting different results.

Speaker A: Yeah, and when you talk about the time and the tools piece, it strikes me that, uh, a lot of organizations treat strategy as more of an annual event, right? The off site, whatever that may look like, instead of a daily. Call it discipline. Why is that?

Speaker B: Well, I think historically, when you think about where strategy started in the military arena thousands of years ago, you know, typically the campaigns from a military strategy were longer in nature. I mean, it would take months or years to accomplish goals and objectives. And then business overtook that definition of strategy, uh, back in the 40s, 50s, 60s. And so I think people started thinking, well, strategies, long term, tactics are short term. And, and really time is not a good criterion to define strategy. The way we want to differentiate strategy and tactics is really, um, generally and specifically. So strategy is generally how we're going to achieve our goals and objectives, our general path. And then tactics are going to be the specific, tangible things that we're going to put time and money to in order to get there. And so, you know, Dave, years ago as I was doing this, typically we'd be developing five and ten year plans for companies. But these days I'm seeing a much shorter timeframe, typically one year, maybe three year plans. And I think that's just because the pace of technology, we've got the introduction of AI in the last couple years. So things are changing more Rapidly. I do think, um, to your point, I do think it's still important to do things like scenario planning, where we identify three to five potential scenarios in the next few years that we could run into and then come up with some plans for that as well. But, but again, I think, you know, to your point, strategy is often treated like a birthday where it happens once a year, there's a lot of signage and fanfare, and then it goes away for 11 and a half months. But what I found is the best leaders are really disciplined in thinking strategically. And what do we mean by that? So they're learning, they're gaining new insights, they're setting direction, they're recalibrating direction on a regular basis, not just once a year.

Speaker A: So if they're not doing those things, is it fair to say they're stuck in a more tactical mindset?

Speaker B: Yeah, I think that's a good way to put it. And you bring up a great word there. M Mindset. Because oftentimes when we think about strategy, we think about the direction that we're headed, we think about the path that we want to go down. And before we get to the group work, uh, it does take a mindset shift. And that mindset shift is getting comfortable as a leader that we can't control everything and we can't necessarily predict everything. So strategy requires some, uh, level of anxiety and discomfort because we naturally have to take risks. We've got to put ourselves out there because great strategy demands trade offs. We've got to choose one or two paths and we have to forego lots of other paths that potentially could be very valuable. You know, great example historically has been Apple. And you know, Steve Jobs has said, you know, back in the day when he founded Apple, he said, look, you know, people think focus means saying yes to the thing you're going to focus on. He said, but that's not what it is. He said trade offs. And focus is really saying no to a lot of other very good ideas that, that could be exciting. But, but we've gotta have the discipline to say no to those and to follow one or two paths that are gonna help us be successful.

Speaker A: Yeah, I was trying to hopefully get the audience to understand whether or not they're stuck in a tactical versus a strategic mindset. And I think we, we sorted that pretty nicely. But if folks are concerned that this is maybe a long term cognitive mindset shift, is this actually something that they could pivot to relatively quickly to start learning how to think more strategically?

Speaker B: Yeah, and it's a Great point, Dave. I mean, there's some signs when people are not being strategic. So if you've got a team that you're overseeing in a company, here are a couple things that you can look for. Number one, are you talking about the same topics month after month after month after month? If that's the case, then we're not making decisions, we're not moving things forward, we're not putting ourselves in the future state of the business. So I would say the first sign is talking about the same topics month after month with no progress gain. The second piece is as a leader, think about what percentage of time each month do you invest thinking about the current state of the business. And then what percentage of time do you invest thinking about the future state of the business? And typically Dave, what I've seen is most people are spending about 90% of the time on the current state and maybe 10% on future. But when you look at some of the best leaders and best companies, people like Jensen Huang at Nvidia, uh, uh, Meg Whitman when she was running ebay, and then HP Enterprises, they specifically talked about the fact they were spending 30, 40% of their time with themselves and their team thinking about the future state of the business. So what core competencies do we need to develop? What capabilities do we need to create? How do we position ourselves for not just success today, but for success in the future? So again, I think those are a couple of the key things. And to your point, how do we then start to transform that tactical thinking into strategic thinking? First, it's just an awareness. What does it mean to be strategic? We talked about that earlier with some great questions that you posed. So one of the things that we're seeing now is great leaders are helping their team move out of the tactical mindset by creating accountability for insights. You know, we talked earlier about insights are learnings that lead to new value. I mentioned Jensen Huang a moment ago. Uh, in one of the books he described his process over the last 25 years with Nvidia, which is most successful stock over the last 10 years. And he said he required people to share their insights via email each month. And he said he sits down on Sunday night with a glass of 12 year old Highland park scotch. And I don't think scotch is a requirement. Uh, you can use red wine, white wine, whatever you want. But he goes through those ideas, those learnings from people in the organization and he said that's one of the main reasons he's uh, the, the company has been that successful. So I would say One way as a leader to transform your organization into being more strategic is to create accountability. So each month or each quarter, ask people to share three to five learnings or insights that have helped generate new value for themselves, for the team, or for external customers. And if you start to create that accountability for insights, then all of a sudden we've got a true learning organization and we're able to adapt to changes much more quickly than the competition.

Speaker A: Yeah, the Highland 12 is a good recommendation. I, uh, would endorse that one. So what you just described, Rich, is that part of what, uh, I'll call your framework for strategic thinking, or is yours slightly different?

Speaker B: Yeah, so, you know, that would be part of it. Uh, my framework has three A's. Acumen, allocation, action. So I ask people, when they're being strategic, to think, plan, and act strategically. You know, we talked about mindset a moment ago. It's not enough just to think strategically, but then we've got to be able to reconfigure our resources, our time, our people, our talent, our budget. And then we've got to be able to act strategically. We've got to have the discipline each day to not fall into that reactive mode where we're fighting fires and bouncing around like bumper cars from one thing to the next. So the framework I think about, acumen insight that we've talked about is definitely the first part of that framework. But then we've got to be able to allocate and reallocate resources based on the new value that we're seeing and that we're trying to provide. And then we've got to act strategically with that discipline day in and day out to be strategic.

Speaker A: Yeah. And of those three disciplines, where do you find leaders are struggling most?

Speaker B: So, yeah, I developed, uh, everyone out there is familiar with the iq, uh, the eq, even for emotional intelligence. So to that point, Dave, one of the things I said, well, let's develop an sq. So we created years ago, a validated sq, Strategic quotient assessment to really baseline, you know, are you. Where. Where are you when it comes to thinking, planning, and acting strategically? So, acumen, allocation, action. And over the years, we've had about 5,000 people take that sq, and the average score overall is about 70, which is slightly below average, uh, when we think about, you know, general cognition. And so the. The score that tends to be the lowest is the acumen, the. The new insights. And I think that's just because, you know, you touched on it earlier, Dave. You know, we get into that tactical mindset we're doing the same things, the same tactics we've done year after year. And we get stuck in that status quo. And I think as leaders, one of the things I challenge everyone out there to think about is are you giving yourself and your team some time and some questions and tools to generate those new ideas and those new insights? And, and then are you creating accountability for that insight generation, those learnings, building that acumen? So I would say those are probably two of the main things really that, that fall into, into question is, you know, how do we build up that acumen piece? Because acumen tends to be the lowest score.

Speaker A: Interesting. And, and for folks who are listening and wondering, why are these guys debating this strategy versus tactical stuff? And what, what does, what does that really mean to the business? I want to get your take on how directly is strategic clarity tied to enterprise value and competitive advantage?

Speaker B: Yeah, so when you look, uh, there are a couple studies. One, uh, was Harvard published in the Harvard Business Review. It looked at 750 bankrupt companies over a 25 year period. And what they found was that the majority of bankruptcies were due to bad strategy. Not just the execution of the strategy, but having a strategy that no longer provided competitive advantage. And what do we mean by competitive advantage? Because that term is out there a lot. Competitive advantage is when you're able to provide superior value to customers. So superior value to customers. And so the research showed that just over 50% of bankruptcies were due to bad strategy. There's also studies that show that when companies, uh, fail to create new strategy and new value, that they typically stall their growth. And when they stall their growth, it's only about 5 to 10% of companies that can actually get back to the profitability levels that they had before that growth stall. So part of strategy, David, it's a great point that you bring up. Part of strategy is evolution. How are you evolving your business model so that you will continually anticipate what new value looks like to customers? I mean, even if we're not in the consumer, even if we're a B2B company, Amazon has reset what customer expectations on speed of delivery look like today. So even if we're in a B2B world, that has shifted in our mindset. So one of the things I'd recommend for leaders out there is revisit your business model. And again, we think about a business model, it's simple in nature. It's how do you create value, how do you deliver value? And how do you capture value? So create value, deliver value, capture value. As a leader out there, are you spending time thinking about how you're evolving in each of those areas? So to your point, Dave, the research definitely shows that organizations that don't practice or don't have clear strategies are not as successful. And the other study I'd mentioned by Professor Porter and Nariya out of Harvard Business School, um, and this dates back probably about eight to 10 years ago, but some other folks have revalidated it. They showed over a 10 year period that companies that had clearly defined and well articulated strategies outperformed their competition by 332% in sales and 304% in profit margin over a 10 year period. And there were some other factors involved, but having clear strategy was one of the key criteria for that outperformance versus companies that were purely tactical and reactionary.

Speaker A: Uh, it's funny, when you were talking about those strategic whiffs and the companies that, that failed, first thing that popped in my head was Blockbuster Video and how they completely missed the mark on that one.

Speaker B: Yes. Yeah, that's a great example. And it's amazing when you, when you look at that, that story because Netflix obviously, which came in and changed the market and they evolved the value, right? Blockbuster was great when people wanted to go to a physical store, you know, try and find one of the five new copies of the release on Friday afternoon. But once that value shifted and people said, no, I'd like more convenience, the DVD by mail is easier to use. And then obviously now we're in the streaming world. But Blockbuster is a good example that you bring up because what they failed to do was they failed to assess the competition's ability to create new value. And so as leaders out there, and this is a very interesting exercise, think about three things when you think about your competition. And these are the three components of competitive advantage. Think about capabilities, activities and offerings. So capabilities, what are the resources and the skill sets and the knowledge that your competition has. Then activities, what are they doing in the marketplace when it comes to selling, service, education, support, experience. And then think about the offerings themselves. Products, services, educational materials and so forth are the in what I'd recommend is on a monthly or quarterly. Quarterly is probably more reasonable. Look at those three areas, capabilities, activities and offerings. And ask yourself, has the competition changed anything in those three areas? Because if they have, that's a good indication that customers might be seeing new value from them that you're not producing. So again, a lot of us think, hey, you know, I know the competition, we've been in business 25 years, we know everybody. But the reality is competition's continually evolving and we've got to understand what that evolution looks like.

Speaker A: That is some really brilliant insight there. Thank you for sharing that. That, that is money right there. Rich. When you're assessing companies, what are the signals that tell you that a company is actually, uh, has a strategy versus maybe just having goals and aspirations.

Speaker B: So one of the things I would say is having people at all levels be able to share with you in one statement what the company strategy looks like. And that sounds easy, but it can be very challenging. And I would say every, you know, it's, it, we're, we're, we're, we should be past the days where strategy is this secret binder, you know, buried in the CEO's office and she won't let anyone else see it. Um, strategy should be something. Even if your competition knows your strategy because of the different activities, the culture, the systems, the process, all of those things that are unique to you, if you're truly making trade offs and not trying to be all things to all people, then it becomes very difficult for a company to copy your strategy, so to speak. So again, I would recommend to leaders out there, sit with your teams and talk to them about what the company strategy is and why the company strategy is what it is, why is that the strategy, how does that provide competitive advantage and differentiation from the competition? And then most importantly Dave, have you explained to your team how they contribute to the strategy? Because it's one thing for the team to know the company strategy, it's another for them to understand why is that important to me in the job that I have. And that should go from individual contributors all the way up to the C suite. Everybody should be able to sit down with their boss and have the conversation as a team about why the strategy is what it is. And here's how we contribute to that day in and day out. If we do that, we're going to have a much more engaged team. And the other part is the research by uh, Kuzis, K O U Z E S has shown that if people believe that you're strategic as a leader and that you've set good strategic direction, they are 40 more committed to executing the strategy than if they view you as tactical, as a flavor of the month type of leader, that's going to change strategy from one month to the next month to the next month. So again, for leaders out there, if you take the time to be strategic with your teams, to share insights, to gain their ideas and, and then to Share with them why the strategy is what it is. They're going to be 40% more committed to buying into and helping you execute that strategy.

Speaker A: Yeah, and I just want to put an exclamation mark on, uh, what you said about getting people more engaged. When people understand the why and how they specifically contribute, they do buy in and they're, they're more involved in the process. And as we talk about in this program a lot, uh, more engaged workforce is a more productive workforce. And that's going to lead to more creative thinking, innovation and greater enterprise value. So it is all connected and great observation there. I just had to emphasize that I'd be remiss if I didn't talk about AI, because it's everywhere right now. How is AI impacting the definition of strategy and the overall speed of execution?

Speaker B: Well, it is having a significant impact, I would say. And as a leader, we want to get comfortable with AI and the ability to use AI to help us now at this point, and maybe it won't be too far in the future, but at this point as, uh, a leader, um, we're still able to understand context, we're still able to understand nuances of the business, historical pieces of the business that help us set direction for the company. Again, we understand the culture, we understand our processes and systems, our limitations. So as a leader, all of those things are still within your purview. However, as a leader, we want to be able to use AI to augment what we can do. So one thing I've seen be very effective. We talked earlier about scenarios and saying what might the future look like in the next one to three years and then how might we position ourselves? So AI is a very powerful resource to help start to paint, uh, those pictures of what scenarios in the future might look like, uh, and help us with that. AI also provides great windows into the competitive landscape when it comes to pricing, when it comes to performance, when it comes to competitive, uh, attributes. So again, I think AI can be very helpful from a leader's perspective in providing a window into what potential future outcomes could look like, what competitors are doing, uh, what's happening with customers in the marketplace. So I would say as a leader, it can really accelerate your decision making on where you want to put your resources, on what strategies that you want to follow. So I would. Right now I think of AI really primarily as an accelerant to our decision making. Because, Dave, and you probably see this, one of the biggest issues in a lot of companies still is not having decision velocity, meaning we're moving too slowly, even in small to mid sized companies. So AI I think can help increase our decision velocity by filling in a lot of the blank spots that we might have.

Speaker A: Yeah, that decision velocity oftentimes is, is the fear of moving forward from what I've experienced over my career and uh, indecisiveness and inaction is just as bad or worse than uh, making that wrong decision.

Speaker B: Yeah, that's a good point. You know, Stephen Gorman was the former CEO of Greyhound and I remember one of his quotes, he said a bad decision is better than a lack of direction. He said most decisions can be undone, but you have to m learn to move with the right amount of speed. So I would agree. And I think to your point, a lot of times we're fearful to make decisions because they do involve trade offs. Right. I mean we're cutting off potential revenue, potential customers by focusing in certain areas. And as a leader, you know, that's risky to do because if some of those areas don't pan out, then we can be held accountable. Uh, because oftentimes sins of commission when we do something and it fails are punished much more harshly than sins of omission when we decide just not to do anything. And people don't really realize that we missed an opportunity to, that we could have taken. So again, especially for leaders out there that have been very successful, driving your company to where you are now, got to ask yourself, you know, do you still have the courage to make the trade offs that are required to get to the next level? You know, great leaders understand that they, they can't just rest on their laurels and they've got to be able to, to continue to take educated risks and make those trade offs that strategy demands us to make.

Speaker A: Yeah, rich, you've shared so many great nuggets with us today, but we're getting close to the end of the program here. But I want to bring it all home with, I'll call it a call to action moment for the leaders out there who are listening and want to become more strategic. Starting today or tomorrow, after they're done listening to this program, what would be the top couple of things you might recommend that they do or change.

Speaker B: So number one, easy to do. Start an insight journal. And this can be electronic. It can be in an app like OneNote or Evernote. It could be the notes section of your phone. There's other apps, could be in your hardcover day planner or your calendar. But jot down your ideas, your thinking, your insights, your learnings that lead to new value. I Know they're in your head. But as a leader, set the example and start putting those down. And then start sharing those with your team in staff meetings, in quarterly report meetings. And then start to create that accountability for insights learnings that lead to new value. So I would say that's the biggest one, Dave, is as a leader, walk that talk, start to jot down your insights, then create accountability for insights for people. And then I would say ask your people, is there a common language for strategy? So in your next staff meeting, give people a three by five note card, have them jot down their definition of strategy, and then read all those definitions. Are they the same? If not, create that common language for strategy. You will save hundreds, if not thousands of hours of meeting time if your people all have the same terminology when it comes to strategy, tactics, goals, objectives, mission, vision. So create that common language for strategy because that will help you be strategic. And then the last one, Dave, I would say is the third one is what are the trade offs specifically that you and your team are making? So, uh, great leaders always have a to do list. But be crystal clear with your team and have them contribute to that not to do list. What are we as a leadership team not going to focus on? What types of customers are we not going to serve? What types of products and services are we not going to offer? The more explicit we are on the knots, the more value we'll bring in the areas that we choose to focus on.

Speaker A: Yeah, that's a brilliant insight. And I, I don't know that I've seen many clients over the course of my career focusing on the, the not because there's. Unfortunately this mindset may be that any buck is a good buck and, but we all have come to learn the hard way that not every client is a good client.

Speaker B: Amen to that.

Speaker A: Yeah, Rich, uh, before I let you bounce here, uh, and, and thank you so much for sharing with us today. Tell the folks who are listening how they can find you, connect with you and work with you.

Speaker B: Yeah, so, um, I believe in sharing a lot of free resources with people. Articles, videos, audios, infographics. So if you're looking to be more strategic, visit strategyskills.com so strategyskills.com lots of free resources there to help you be more strategic and to kind of get you on your way. And feel free to hit me up on LinkedIn. I'm always happy to, uh, connect with folks there as well.

Speaker A: That's awesome, Rich. Thank you so much for joining me today on behind the Numbers. Really, really enjoyed this conversation.

Speaker B: Thanks. David was great to be with you. Appreciated the awesome questions today.

Speaker A: You got it, man. Take care and thank you out there for listening to behind the numbers with Dave Bookbinder. Really appreciate your support. That's all we have for today, gang. Until next time, I am Dave Bookbinder, reminding you that the numbers tell the story, but the people bring it to life. Take care and we'll see you next time on behind the Numbers. Sam.