In business, and sometimes in life, we are constantly in search of the next big opportunity. Historically, next big opportunities originate less from revolutionary ideas and far more from ideas that are evolutionary – through thoughtful combinations of things that are seemingly unconnected. And hence, as we set out to craft organizational strategies to identify, materialize and monetize the next big opportunities, it is helpful to recognize that strategy alone or intuition alone isn’t sufficient. Instead, something that combines both these dimensions, called strategic intuition, holds the key to success. First, let’s briefly revisit what is strategy, what it is not, and how you develop one.
At its core, strategy is something simple. It is about making explicit choices – to do some things and not others – and building a business around those choices. As Michael Porter had put it decades ago – a firm creates sustainable competitive advantage over its rivals by “deliberately choosing a different set of activities to deliver unique value.” When a strategy succeeds, it seems a little like magic, characterized by unknown unknowns in advance but obvious in retrospect.
Many business leaders allow what is urgent to crowd out what is really important. As a result, many of them tend to approach strategy in at least four ineffective ways. First, they define strategy as a vision. While vision and mission statements are important, they don’t include choices about what businesses to be in or not to be in. Second, they define strategy as a plan. A plan that lists a set of activities and timeframes may be great, but it does not necessarily mean that the addition of those activities will lead to sustained competitive advantage. Third, they doubt whether a long-term strategy is even possible or helpful in the rapidly changing world. This, however, places a company in reactive mode, making it easy picking by rivals. Not only is strategy possible in times of uncertainty, it can be a source of competitive advantage. Google, P&G, Singapore Airlines, Toyota, Aarong all have very deliberate long term strategies in place. Fourth, they define strategy as an optimization of current business operations. While this can create value, it isn’t strategy. Optimization does not address the very real possibility that the wrong things are being optimized. These ineffective approaches lead to reluctance in making truly hard choices.
At the end of the day, strategy development process must address the following five questions. What is your organization’s aspiration? Where should you play? How can you win there? What capabilities do you need? What management systems do you need? It is important to recognize that these questions lead to choices that need to be interconnected.
Let’s turn to intuition now. There are ordinary intuitions like hunches and gut feelings. And there are expert intuitions where we jump to a conclusion based on similarity with certain past experiences. Both these forms of intuition are pivoted on past experiences. What if the future isn’t exactly as the past?
Enter the realm of nonlinearity – the phenomenon of irregular patterns that defy prediction with ordinary tools of analysis. While the study of nonlinearity is relatively new (only a handful of academic institutions to date offer a specialization in this subject), its roots can be traced back to 1810 when the word strategy entered the English language in the context of war at the height of Napoleon’s military adventures. Carl von Clausewitz, a leading military theorist at that time, underscored that the outcome of a war depends on what happens during the war, which in turn depends on “the general’s coup d’oeil” (a glance, or literally ‘stroke of the eye’), and therefore you cannot predict the outcome beforehand. Strategic intuition is a nonlinear discipline.
I had the privilege to study with Professor William Duggan, the founder of the Strategic Intuition discipline, during my time as a Global Leadership Fellow at the World Economic Forum. He tended to describe Strategic Intuition by highlighting the differences it had with other disciplines but not going as far as providing a formal definition for it. For me, however, the most prominent distinction was that while other forms of intuition rely solely on one’s own past experiences, strategic intuition draws on the experience of others as well.In some way, it is the ability to connect seemingly unconnected dots. Let me elaborate by using an example from my most favorite company: Apple. Steve Jobs’ famous visit to Xerox’s Palo Alto Research Center in December 1979, where he saw the graphical user interface (GUI), is credited with the birth of Apple Macintosh – the computer that changed everything for Apple (and arguably for everyone else in the industry as well). Xerox’s own GUI machine sold only a few units. Apple’s Macintosh was launched in 1984 with a masterpiece ad campaign, referencing George Orwell’s novel, that said “1984 won’t be like 1984” and sold over 200,000 units by year-end. In describing the Xerox visit, Jobs had said “they showed me really three things; but I was so blinded by the first one (GUI) I didn’t even really see the other two.” Jobs instantly connected the dots between Apple’s earlier machines (its own experiences) and what this new GUI (experiences of others) could do when thoughtfully combined. That capability is strategic intuition. Many of Jobs’ subsequent successes, such as iMac, iPod and Pixar, also originated from similar capability.
The significance of the ability to seamlessly combine facts and intuition in decision making is well documented. A study published in the MIT Sloan Management Review mapped various decisions made in organizations using what it called the Data-Intuition Mix (Figure 1).Several hundred business leaders were asked to indicate what they relied on most for a multitude of business functions. The results were hardly surprising. For business functions such as financial forecasts and annual budgeting, most respondents relied on data. For ‘higher order’ business functions such as predicting risks, developing new products and establishing organizational strategy, a combination of data and intuition were at play. It is important to note that as we move towards higher order business functions, the relevance of data (or facts) do not diminish at all, instead it is the thoughtful combination of facts and intuition that seems to be most prevalent among business leaders.
We operate in a world where an organizational bias for action drives doing, and as a result, thinking (and connecting seemingly unconnected dots) often takes a back seat. This impacts the quality of the choices we make, the strategies we pursue, and the market shares we win. Very few organizations appreciate the value in thinking and invest the commensurate resources for it. It is hardly surprising then to see only a handful of organizations in any given market segment enjoying a lion’s share of that market.