By Fredrik Schuller
What is the definition and purpose of strategy? The father of corporate strategy, Michael Porter, created a definition of strategy that is as relevant today as it was when it originated: the purpose of strategy is to generate greater returns than competitors. Porter developed three principles of strategic positioning:
- Strategy is the creation of a unique and valuable position – involving a different set of activities or the same activities performed different from competitors
- Strategy requires you to make tradeoffs in competing – you need to choose what NOT to do
- Strategy must “fit” among a company’s activities – meaning that it would be impractical to completely redesign everything you currently do and expect to be successful
The key words are “different” and “unique”. In a world where benchmarking and best practices flourish, it is difficult to remain unique. Really, really difficult! But the reality is, if you can’t stand out from the crowd, it is hard to generate sustainable high revenue growth and returns.
Who is responsible for driving strategic positioning and differentiation? Ultimately, all employees, but no one is more crucial than leaders. Leaders make many decisions and tradeoffs on where and how to invest the company’s resources. In this blog post, I’d like to focus specifically on how leaders behave and why the current method most companies use to shape leaders destroys the company’s uniqueness, differentiation and the ability to execute.
First, let’s consider how “best in class” competencies and leadership expectation models are built. The models:
- Are broad enough to be applicable to everyone, but too general to be useful for anyone
- Span too broadly across the business – do not provide context on how different parts of the business contribute to the strategy
- Are taken from a library of competencies or behaviors written to apply to any company or industry
- Can be so complex and general that it is hard for managers to apply them in a meaningful way
- Are too general to give any meaningful feedback without a good bit of imagination in performance reviews and 360 surveys.
As a result, most companies end up promoting and rewarding leaders on results regardless of how they are achieved.
But worst of all, by measuring and holding people accountable to general behaviors and competencies, leaders are driven towards a norm NOT set by the company’s unique strategy, but by the validation of the model across multiple companies and industries. This is exactly the opposite of what you need to do if you want to be unique.
Let me share an example to illustrate:
The president of an Asian business unit for an oil and gas client wanted to look at their five-to-ten year strategy and define what leadership capabilities would be required from their top 100 leaders to meet their business objectives. The company has operated in the country for more than a century, but the leases for some of their large producing fields are expiring in the next five-to-ten years. The national oil company is eager to get their hands on the leases and take over production; however, operating in the country has unique challenges. For example, the government and society have no tolerance for incidents harming people or the environment and it is mandated that 80% of the employees and leaders are nationals of the country. In order to be successful, the company must ensure its leaders have the right skills and capabilities to operate in this environment.
How would traditional competency models be used in this case? You would select competencies from an existing library. Given what I have shared about the organization above, you are probably thinking communication and stakeholder management would be two natural competencies to choose. Now what would the stock behaviors for that be? “Engages with external stakeholders to find win-win solutions”, “Communicates the company’s value proposition to partners and customers” You get the point…
Now, what is the problem with that approach? The problem is that we do not even start touching the complexity of what we really need from the leaders. To renew the leases, leaders will need to anticipate changes in power on a local and federal government level and build relationships with people in power as well as with people believed to be coming to power in the future. Everyone interacting with officials also need to be aligned on messaging and have a common voice clearly articulating how the company’s operations will benefit the government and people of the country. Here are some examples of the specificity the behaviors need to get to:
- Networks with government officials, parliament members, local, and community leaders on a regular basis to build new relationships and strengthen existing ones to leverage in the future
- Continuously monitors the political landscape and various levels of government anticipating shifts that could occur
- Adapts to the ever changing systems, people, regulations and policies of a dynamic government
I am only scratching the surface on this topic; imagine what this may look like for ensuring safe and reliable operation of the existing business.
What is important when we help leaders develop and better execute the strategy? If you are going to define and hold leaders accountable for behaviors, you need to tie them to the execution of the strategy and define the behaviors specific to their role that ensure strategic differentiation. In the example above, the company’s strategic differentiation is its safety and environmental stewardship, relationships with the local and federal governments, and technology that helps get more of the resources out of the ground.
Wouldn’t it be wonderful if you could define great leadership by celebrating the unique aspects of the strategy and how the company differentiates itself? You should measure the organizational capability of the leaders and select, evaluate, reward, and develop the leaders in the context and specificity of how they are contributing to the strategy.
Here is an approach we have used successfully with clients to create highly relevant impact profiles that people adopt because they can see the direct connection to strategy execution:
- Conduct executive/leader interviews to uncover the three-to-five year strategy and identify the high leverage behaviors that are unique to execution (the executives always have a great perspective on what behaviors are required for strategy execution).
- Let the leaders own the execution factors and behaviors by having them be the steering committee.
- Analyze and assess the organization to uncover the critical gaps
- Connect and hardwire the refined list of high leverage behaviors directly to key business metrics and outcomes.
- Create a high impact learning and execution journey to build execution capability. Make sure intentionality, support and accountability is built into the process.
- Embed behaviors and business metrics into selections, promotions, performance management reviews and compensation systems.
- As the strategy evolves, refine and update.
- Always focus on what drives differentiation for the company.
To revisit my opening question:Michael Porters says “benchmarking is the enemy of strategy”, the same applies for your company’s leadership and competency model. Dare to be unique, set the expectations, measure and celebrate difference!
- Download the Blog Post
About the Author: Fredrik Schuller is a Vice President at BTS.