What is Strategic Thinking & Why is it Important for Leaders?

Table of Contents

Original Source: Zhenghe Dao

Credit to: Chen Chunhua, Prof. of National School of Development at Peking University, Independent Director at Bank of China

Strategic Thinking

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Businesses are divided into temporary winners, stage winners, and permanent winners. Temporary winners are opportunists, stage winners are pragmatists, and permanent winners are strategic leaders.

Companies that do not go far, mainly because they lack strategy.

Most companies can solve immediate problems with ease and focus more on how to compete and with whom, but if a company is caught in such strife, it usually has no concrete strategy.

Why Should You be Persistently Training Your Strategic Thinking?

the essence of strategy

I believe that as the top leader of a company, you must be very competent in strategic planning.

All these years, China companies do not particularly care about their strategic planning. For quite a long period, the state of supply has always been insufficient in every industry. When starting a business, there will always be opportunities as long as you work hard on it.

These days, however, the biggest challenge of this era is the market surplus.

So why are there so many online businesses that move offline nowadays? I have seen statistics that the time an average person in the world spent online are around 3.9 hours, and an average person in China spent 4.2 hours online. The time a person spends online each day is about 4 to 5 hours, once these 4 to 5 hours quota has been “spent”, many online businesses will have to shift their focus offline.

With the market in surplus or oversupplied nowadays, making the right strategic choices becomes the most critical issue. Strategy is about creating values for customers, which is the fundamental problem businesses needs to solve.

That is why I believe there’s a need to train the core team to think strategically – to keep them thinking consistently on how to create distinct value for the customers.

Two Crucial Questions to Ask About Forming Strategy

Strategy vs Management

I was often asked what are the differences between strategy and management style.

Management mainly deals with two issues: reducing costs and improving efficiency. When you manage to bring down costs and improve efficiency, you are doing things right.

The strategy however focus on two fundamental questions. First, how to create values for customers, and secondly, how to sustain growth.

By choosing the right strategy, we can have the opportunity for growth with our customers, which is why strategy must play a tractive role. In any organization, both strategy and management are essential.

So why is it important to understand the definition of strategy? The essence of strategy is making choices, and it’s what you choose not to do that really matters. So, I often ask people this question: What do we choose to do? What do we choose not to do?

This is a question you must think through because there are no ways to execute all of it well if you try do everything. The strategic choices, are to stay with the customer, focus our strength on creating customer values, and achieve maximum growth.

As I have found in many companies I have accompanied, some leaders have excellent strategic thinking skills and average management skills, yet their businesses perform very well in terms of growth and robustness. In contrast, some leaders excels in management and have done an excellent job with their management, but their businesses have no room for growth and future opportunities.

Hence, the first requirement for a top leader of any organization is to be a strategic thinker. When you start think strategically, you will choose the best strategy on how to grow and how to improve customer value. Again, this is how top business leaders should prepare themselves.

Five Perspectives to Help You Understand and Develop Your Strategy

By definition, strategy is a plan that integrates the organization’s goals and policies to enable consistent actions across the organization. Here are five perspectives to help you understand and dev elop the strategy.

1. Strategy are a Set of Plans

Strategy is a set of Plans

During my regional research, I was told by many of my regional leaders that our strategy was well-defined. I then asked: If the strategy is well defined, what will your goal be? He said: to build and improve our regional business even more.

Those are not goals, those are slogans. Goals must be very clear and specific, as in how many customers do we serve? How much are the sales revenue? How to drive market growth, etc. It’s needs to be very well defined.

Strategy is always a set of plans, with four elements: goals, tactics, assessment framework, and action plans.

As I wrote in a book called “40 Years of Shunde”, without geographical advantage, Shunde, a district in Guangdong province, China, chose to make every effort to cultivate its industrial sector, from manufacturing a small fan to the world’s most extensive manufacturing base for air conditioners, microwave ovens, and refrigerators. Therefore there are always the power of choice in strategic planning.

It is also crucial to be able to assess the performance of the plan. I often believe that most businesses do not have a good strategy, as there was never any way they could examine it. It is crucial to evaluate the strategic plan and validate it to make it work.

Finally, the plan should have an action plan. A strategic plan should not be just a dream, nor a goal, but an action plan, which you have to execute to make sure the strategies are accomplished.

2. Strategy is a Business Model

Strategy is a Business Model

A strategy must be a business model, which addresses the following aspects.

First, there must be a clear value proposition.

During the formative years of Alibaba, Jack Ma put forward Alibaba’s value proposition very clearly: to make it easy to do business anywhere. From this value proposition, Alibaba made it its goal to improve customer values and eventually it won the space for its survival.

Therefore, make it clear to people what you have to offer in terms of value.

Then comes your cost model and your revenue model. That is, what makes you profitable and what your cost structure is.

Having designed this, address the supply chain. And the last one is your organizational structure.

So, strategy is to create goals, tactics, assessment framework, and action plans that fits into a business model and then convert it into a value proposition, cost model and revenue model, supply chain, and organizational structure. Only through this, the strategy created can be truly adopted by the team.

3. Strategy is a Judgment of the Future

Strategy is about the Future

While formulating strategy, we are only answering questions on how to get ourselves to the future, in another word, we are deciding the present with our future in mind.

Today we see growth in many cities in China, and growth comes from the previous strategy placements. Thus, there must be judgments towards the future when we formulate our present strategies.

Guizhou, for example, has seized an exceptional position in this new wave of development that stands out in the era of big data. So why did Guizhou succeed? The reason is simply because it did the deployment of digitalization with the big data industry many years ago; it explicitly set big data as its strategic direction for the entire province.

It is never too late to make a strategy at any point in time, and you only need to make your choices for what the future holds. Someone from the small business sector once said to me, Ms. Chen, you probably pay less attention to me, as you serve only the larger enterprises. I replied that there are no large or small businesses these days, as changes are happening too fast these days.

Remember that it is never too late to make your choice at any given point of time, as we are all creating the future, and today is always the best choice.

4. The Core of the Strategy is Execution

strategy is about execution

At times, creating a strategy can be very high risk, that could have a significant impact once the wrong choice is made. However, the core of the strategy is not about the choices; it is about execution.

People are often fearful of making the wrong choice, they often think that if you do, you are not capable of being a strategist. In practice, the key to strategy in many companies are always the implementation. As Ren Zhengfei once said when summing up Huawei’s success today, “while the direction is generally correct, execution is the key.”

5. Strategy is a Concept

strategy is a concept

Lastly, you need to have the ability to translate strategy into a concept. A concept is good for aligning people, maintaining consistency, and bridging the gap with the external parties.

In the opening of China 40 years ago, Deng Xiaoping, the General Architect of the country, led us to make the most meaningful strategic choices, the strategy of “focusing on economic development”. How could this strategy unite everyone’s thoughts and keep the whole country in line? Deng Xiaoping used the concept of Chinese Economic Reform.

Without the concept of Chinese Economic Reform, we would not have been able to align everyone’s actions with the direction of focusing on economic development. That is why whenever there were arguments among the people, and we were not sure what to do, we returned to the concept, “It doesn’t matter whether a cat is black or white, it’s a good cat, as long as it catches mice.”.

So, strategy is a concept that helps everyone form coherent perceptions and actions.

Once you have a concept, you can also solve complexity. For instance, the “Shunde model” solves the challenges and complexities of development by using the concepts of industrial, township, and collective enterprises. So when the majority are all practicing strategic thinking, when you can set strategic goals and identify the concepts, it will solve complexity.

Last but not least, strategy is a beautiful dream. As you envision the future, as you choose your goals, you make choices with your dreams, choices about what to do, and choices about what not to do. As we make choices, we are developing our capabilities, and eventually, this capability will be internalized and become your core competencies.

Why do Companies Need Two Sets of Strategies Together in the Digital Age?

strategic portfolio

During the digital age of survival, I have found that companies must have two sets of strategies in place concurrently.

One is the strategy made for operations, reflecting your market and competition, which we call the operational-level strategy. There must also be one called company-level strategy, which is made for growth.

Back in the industrial era, changes in industries and markets were not as rapid, so strategies were designed for operations, or rather for competition, where growth followed from winning the competition. However that is not the case nowadays. Even if you win the competition, you’ll probably still fail to achieve growth, as changes are happening so much faster.

That is why it is vital to have two levels of strategy nowadays: one on the operational level, primarily in the current market, to achieve goals and growth, with the core performance in both market strategy and marketing strategy, where corporate strategy and marketing strategy are often combined into one.

Another one is on the company level, and this is where companies must develop future-proof strategies to pursue new growth opportunities even in the most uncertain environments.

The challenges for companies lies in running two strategies in parallel. Executives will need to do well on the operational level strategy, while entrepreneurs and the core team will have to make their growth strategies well so two strategies can run well at the same time, this is what I would like to inform you.

Translated by: 13Owl

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