How leaders can develop strategic mindsets for uncertain times
Leaders need to adopt a systematic six-fold approach to problem-solving in order to develop business strategies that will meet the challenges of uncertain times
The foundations of business strategy have been shaken over the past few years. Between pandemics and lockdowns, geopolitical shocks and war, the rise of artificial intelligence and major supply chain and labour market disruptions locally and globally, traditional approaches to strategy formulation and execution have proven insufficient in solving increasingly complex business challenges.
These kinds of problems are not the ones executives are historically adept at solving – a fact borne out by the sheer number of businesses that have collapsed in recent years, with company insolvencies recently hitting a 3.5-year high. “We think executives need to come to grips with an environment of rapid change and dissolving industry boundaries,” says Robert McLean AM, a private equity investor and company director who has spent his life solving complex business problems.
Perfectionism is an outdated luxury
Against a backdrop of unprecedented (there’s that word again) change, Mr McLean was emphatic in his analysis of traditional approaches to business strategy development and execution: “strategic frameworks and three-year plans are fantasies,” he states flatly. “No return to a new normal ought to be expected – or a return to certainty with 100 per cent probabilities. Timeframes for strategy are dramatically shortened. In enterprise software new disruptors are disrupting the disruptors.”
Mr McLean, who had a 25-year career with McKinsey and Company where he was Managing Partner for Australia and New Zealand and who also served on the boards of CSR, Pacific Dunlop and Elders, recently co-authored The Imperfectionists: Strategic Mindsets for Uncertain Times. In the book, he provides recommendations for business leaders looking to learn and apply a set of specialised problem-solving skills to meet the needs of the day: “In times of rapid change, you should be curious, embrace risk and not avoid it, you should be suspicious of experts, you should think about how to run your own experiments, you should consider ways to source ideas from entirely different fields,” he asserts.
Business leaders need to stop striving for perfection and instead be comfortable with being an imperfectionist, according to Mr McLean. Indeed, perfectionism is a luxury that modern businesses cannot afford, he says: “we see organisations such as Space X acting as an imperfectionist with its relentless experimenting and decision system ‘fly, test, fail, fix’.”
Mr McLean also pointed to Patagonia founder Yvon Chouinard, who said ‘the world changes too fast for complicated corporate strategies to make sense. The competition beats you to market by the time you have worked it out. The best way is to take small steps and learn by doing.’
The business benefits of good problem-solving
Many executives and other leaders like to think of themselves as good to excellent problem solvers. Mr McLean says the truth comes not so much in self-assessments (in which most companies are likely to give themselves at least a passing grade), but in what skills are in demand and what role problem-solving plays in explaining differences in shareholder returns. “The case for improving individual and institutional problem-solving skills is a strong one,” says Mr McLean, who also served as Dean of the AGSM @ UNSW Business School from 2003 to 2005.
In fact, The World Economic Forum lists complex problem-solving as the top skill for employers. “It wouldn’t be there if senior executives felt it was in ample supply. Executives are saying they want more problem-solving capability,” says Mr McLean, who believes many university curriculums or executive development courses need to invest more in problem-solving skills. “We’re trying to address that by providing an online course with Go1, and we are also seeing many US universities offering problem-solving courses based on bulletproof problem-solving,” he says.
Problem-solving is not just an individual skill, but Mr McLean says it’s also becoming an institutional skill. He points to research from McKinsey which found organisations that have problem-solving in the top quartile earn something like 3.5 times higher total return to shareholders than those in the bottom quartile. If the bottom quartile firm earns a 5 per cent total return to shareholders, the problem-solving stars earn 17.5 per cent per annum. “That’s quite a premium for a company becoming a great problem solver,” says Mr McLean.
What sets the world’s best problem solvers apart?
After helping organisations of all sizes solve complex problems for many decades, Mr McLean says there are a number of characteristics that set good problem-solvers apart from the rest. “In this world of rapid change, the imperfectionists separate decisions that are reversible and low consequence from those that are irreversible,” says Mr McLean, who explains that this approach allows line managers to make reversible and low consequence decisions, while irreversible high consequence decisions are reserved for the CEO’s team and the board.
Imperfectionists also practice humility and tolerate ambiguity ahead of risky strategic moves, according to Mr McLean. “They distinguish between good and bad decisions and good and bad outcomes. They have a culture of valuing questions (not answers) like Google, and actively encourage curiosity by permitting time and resources for projects. They pose audacious questions which can be resolved by looking at problems with a ‘dragonfly eye’, follow trial and error approaches, and bring in perspectives from outside the company, taking small steps that often end in failure,” he says.
Amazon is a powerhouse in consumer finance with a 24 per cent market share in the US with its Amazon Pay service, and Mr McLean says it achieved this position via a series of modest moves involving little financial outlay. It acquired SMS payment service TextPayMe, then invested in PayPal credit service Bill Me Later, hired a team from payment solution platform GoPayGo and launched wireless card payment reader Amazon Local Register. TextPayMe closed in 2014, Local Register withdrew from the market (because of competition from Square) and Bill Me Later was acquired by PayPal. “Their strategic moves resemble a stepped entry into consumer financial services with multiple parallel initiatives,” says Mr McLean.
Problem-solving in the age of digital transformation and AI
Digital transformation and artificial intelligence have accelerated significantly in recent times. This has caught many companies off guard and Mr McLean firmly believes imperfectionist approaches are the need of the hour in addressing such challenges.
“The other option is waiting for certainty, which has a high risk of failure, as does big bets where ‘you leap before you look.’ Addressing audacious questions, taking ecosystem perspectives, relentless experimenting and leaning into risk with small steps is the right playbook for uncertain times,” he says.
“It shouldn’t be surprising that tech companies provide many of the examples in the book. If you’re a company in unmanned autonomous vehicles the only way to convince consumers and regulators of safety concerns is via experiments that address thorny issues like roundabouts or white backgrounds. If you’re an enterprise software company, you will find yourself using and contributing to the collective intelligence of open-source software (OSS). At one time Microsoft was the ‘bete noire’ of OSS, now it is the leading contributor to OSS.”
While AI can play an important role in contributing to problem-solving, Mr McLean believes the sweet spot for AI in aiding collective intelligence is problem-solving where conditions are relatively stable, uncertainty is low, data availability is high, and – importantly – common sense is not required. “Perhaps it’s not surprising that AI provided few (if any) novel or useful perspectives in managing covid 1,” notes Mr McLean.
What steps can executives take to become better problem solvers?
Mr McLean observed that many management teams are stuck in a wait-and-see posture in response to extreme uncertainty in the post-covid environment, while others are making panicky bets, including the aforementioned ‘leap before you look’ acquisitions. “A few years ago, we would have simply said to invest in developing problem-solving capability,” says Mr McLean.
“We still think that holds promise of a good return. But it’s not sufficient for the uncertain times we live in. You need to adopt the six mindsets and the skillset of a systematic problem-solving process. Having now written The Imperfectionists, we see the need for an overhaul of strategy as problem-solving, bringing the six mindsets into play: curiosity, dragonfly eye, occurrent behaviour, collective intelligence, imperfectionism, and show and tell. If you are hanging on to old strategic planning processes and underinvesting in problem-solving you are going to need large dollops of good luck, or find an industry immune from the winds of change,” he concludes.