Strategy Distilled May 2024

Distillations in this newsletter: Deep Design Thinking for Strategy

STRATEGY DISTILLED:

A monthly concoction of insight, learning and things you might have missed for anyone who works on strategy, works with strategy or just loves strategy.

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This month …

Deep Design Thinking for Strategy – an extract from my forthcoming book

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Deep Design Thinking for Strategy

This month’s Strategy Distilled is a bit different. Exactly two years ago I wrote a piece on ‘Strategy as Design Thinking’ in Strategy Distilled (May 2022). This month I’m revisiting the topic in a very much expanded piece because, excitingly, it is a preview of a chapter of a new book I’m publishing in a few weeks. The book is called Deep Design Thinking and it is co-authored by myself and my father, Seaton Baxter, both formerly Professors of Design. Whilst the focus of the book is on the nature of design and the deepening of design thinking, we have given ourselves a chapter each to explain our different areas of application of deep design thinking – mine on strategy design, his on ecological design. This, as happens in all long-form writing, gave me a chance to structure and formalise my thinking on strategy as a design process far more systematically and practically than I’d done before. I hope you learn as much from reading it as I learned from writing it.

 

CHAPTER 6: DEEP DESIGN THINKING FOR STRATEGY

6.1 Mike’s journey to strategy as design thinking

For more than a decade, I considered myself a product designer. For the first half of that time, I was working full-time, researching user needs, running usability tests, designing and refining the design of specific products, securing patent protection on those products, negotiating the commercial production of those products and supporting their launch and initial sales promotions. In other words, I was a designer engaged directly in the full design and development lifecycle of my products. In the latter part of that decade, I moved into more of a managerial role, as Director of the Design Research Centre (DRC) at Brunel University. I did some teaching, quite a bit of research into design processes and methods and worked with the fantastic team at the DRC to support their own design and development projects. The culmination of my (and DRC’s) work over this decade was my book Product Design: A Practical Guide to Systematic Methods of New Product Development.

Fast forward several years and I had started my own consultancy company. I ended up working with a remarkable range of big global brands (e.g. Avis, Cisco, Dell, Google, HSBC, Lilly, Richemont, Sony PlayStation) on a diverse range of topics, including marketing, sales, analytics and digital transformation. At the same time, I worked as an advisor to a series of start-ups, two of which became the 8th and 9th fastest growing tech start-ups in the UK within a few years of each other (Peerius in 2014 and Ometria in 2018). In the course of all this advisory and consulting work, my interest and role in strategy grew and it quickly became clear that the challenges people encountered in creating great strategies had a lot in common with the challenges of creating great designs.

So, around ten years ago, I decided to focus my consultancy work exclusively on strategy, and alongside my work with clients developing their strategies, I was re-reading all the classic texts on strategy and making sure I kept up to date with new books and papers as they came out.

By the time I felt comfortable that I was up to speed with the published strategy literature, I had become convinced there was a big gap in strategy thinking that needed to be filled. My main conclusion was that most of what had been written on strategy were ‘perspectives on strategy’. Michael Porter, like Carl von Clausewitz and Sun Tzu before him, believed that strategy was all about understanding competitors and building defensible barriers to competitive forces. Peter Drucker, and more recently, Steve Blank and Eric Reis believe strategy is all about understanding and accommodating the needs of customers. And then there are a cluster of strategists who believe strategy is all about organisational capabilities: Frederick Taylor focuses on operational efficiency, Gary Hamel focuses on people and culture, Chan Kim & Renee Mauborgne focus on innovation and Rita Gunther McGrath focuses on managerial agility.

These are all great perspectives on strategy. To a large extent they are all right. But what they missed, in my mind, was how to actually ‘do’ strategy – strategy-doing like the design-doing we discussed earlier. Where do you start, once you accept that your organisation needs a new strategy? What are they key ingredients and where do you look for the recipe to create that strategy? I started to piece together my own ‘workshop manual’ on strategy-making.

In April 2019, I tried to capture the essence of strategy in a four-step process:

1. Strategy is born from the need for priorities – no organisation can do everything;
2. These priorities need to build upon the existing strengths of the organisation;
3. These strengths, once prioritised by strategy, need to be turned into action – a strategy without an action-plan is a wish-list;
4. These actions need to be enabled with the right allocation of resources.

Ultimately, according to my thinking at the time, strategy was all about the amplification of the right organisational strengths by means of prioritisation, action planning and resource-allocation.

That same month, I published University Strategy 2020, a research report analysing 52 published strategies of UK Universities. In it, I proposed eight interlinked elements that all good strategies should be designed to contain (see the Strategy Design Model in Figure 10):

1. Destination – where you are striving to get to? What is your “winning aspiration?” What is the important end you are striving to reach?
2. Methods – what are the handful of core activities that are critical for you to reach your destination? Destination and methods are the essence of strategy. They are what strategy is designed around.
3. Alignment – the logic connecting actions to outcomes. If everyone in your organisation is pulling in the same direction, you will achieve more, and achieve it quicker, than if they are pulling in different directions.
4. Innovation – the cultivation of new ways of thinking and working. How much innovation does the strategy demand? How will you build the organisational capability and culture to achieve it?
5. Priority – the identification of what really matters. Peter Drucker, known as the ‘founder of modern management’ says “The worst thing is to do a little bit of everything. It is better to pick the wrong priority than none at all.”
6. Performance – data indicative of meaningful progress. “What gets measured, gets managed!” Whilst this may be true, it is not always a good thing if the changes that matter most are the hardest to measure (e.g. aspects of culture change within an organisation). The measurement of progress serves two purposes: firstly, it justifies continued commitment to the strategy and secondly it informs course-correction and fine-tuning of strategy adoption.
7. Adaptability – resilience and agility combined. A key element of strategy is defining how the organisation is going to respond to change, how it is going to move fast and take advantage of new opportunities as they arise.
8. Adoption – active engagement, willing commitment. The success of every strategy depends on the support it can recruit from the individuals needed to bring about change, which is why we call it adoption: less push, more pull. Putting people at the centre of strategy design ensures their involvement, commitment and active engagement. The governing body and senior leadership need to adopt the strategy and ensure their decisions both support the strategy and avoid eroding or undermining it. Front-line employees and key stakeholders (customers, suppliers, business partners etc.) need to think and work in ways conducive to making the changes sought by the strategy.

Figure 10. Strategy Design Model

Looking back, it was clear that I was working towards two things. A process for ‘doing’ strategy and a set of criteria to check if it had been done well (the Strategy Design Model gave rise to my first Strategy Design Checklist).

In September 2020, I published The Strategy Manual, which set out a clear framework for what ‘doing’ strategy actually meant. Strategy follows a three-stage lifecycle of strategy production, strategy adoption and strategy adaptation (Figure 11).

Figure 11. The Strategy Lifecycle

Each of these stages involves very different types of strategy work, guided by different processes and informed by different tools and models:

1. Strategy Production: This is where the strategy is invented, designed, crafted and brought to life. The strategy production stage is complete when the strategy is produced and launched. Strategy production has two core activities:

a. Strategy scoping – Strategy scoping produces the ‘brief’ for strategy development. It summarises the main strategic opportunities and challenges and identifies the main drivers and aspirations for the new strategy. It also serves as a vital communication role across the organisation, by explaining simply and clearly what is going to be done in order to produce this strategy. Strategy scoping defines:

• What strategic change is sought – what is included in the strategy, and what is not;
• How the strategy will be developed – who will do what by when, what evidence needs to be gathered and what decisions need to be made;
• The acceptance criteria by which the new strategy, once written, will be judged good enough for launch.

b. Strategy development – Strategy development is how you analyse, synthesise, imagine and commit to a new strategy, and how you write it and prepare it for dissemination throughout the organisation. Development involves the creative imagination of strategic ideas, informed by research and analysis, and validation of those ideas to ensure that the strategy you develop makes sense, has internal consistency and is conducive to adoption and adaptation.

2. Strategy adoption: The strategy adoption stage of the strategy lifecycle takes a completed written strategy and creates a delegated, scheduled, prioritised, measured and resourced plan necessary for its strategic success. It is where high-level, organisation-wide strategic goals are translated into actionable goals, applied to local circumstances, that front-line individuals and teams can achieve. Strategy moves from being owned by those who produced it, e.g. senior leadership, to being adopted by those who need to align behind it, e.g. most people in the organisation. It involves not just planning but engagement and commitment, i.e. securing active interest and a willingness to get involved. This is brought about by high levels of consultation, and by influence and autonomy being afforded to individuals and teams. The strategy adoption stage results in a strategic plan.

3. Strategy adaptation: Strategy adaptation is the cycle of sense-making, decision-making and change-making that keeps the organisation responsive to significant change. It involves both strategic resilience and agility, brought about by a combination of measurement and governance. The strategic plan you have at the end of strategy adoption, sadly, won’t last long in its original form. The world will move on. Circumstances will change. And the plan will need to be adapted. If the plan changes so much it can no longer meaningfully derive from the strategy, it is time for a new strategy – strategic plans change but strategy doesn’t. And if you are going to produce a new strategy, what better place to start than with a review of the current strategy? Strategy adaptation, therefore, ends with a strategy review.

In May 2022 I finally committed-to-print an idea that I’d been wrestling with for several years: that strategy is best thought of as a design thinking process (see Strategy as Design Thinking).

In simple terms, we can start to see strategy as three key stages of a design thinking process:

1. Strategy sets out a design ambition – inventing the future you want to bring about (note: strategy should never be about merely choosing the best available option);
2. Strategy is managed by means of a design process – iterative cycles of divergent and convergent thinking, progressively narrowing until we can define a desired destination or path;
3. Strategy has two specific designed outputs – the first is the production of a strategy that sets out the high-level goals by which our strategic ambition will be achieved. The second is a strategic plan setting out who does what, by when and to what standard in order to deliver the high-level strategic goals.

6.2 The Strategy Design process defined

Clearly, this bears a striking resemblance to the key defining features of design thinking that we devised in Chapter 2 – all I’ve done here is adapt the key components of design thinking to apply to strategic thinking.

1. Strategy design is intentional or purposeful and, therefore, the strategy design process begins by defining its intended outcome. Often, this outcome will be defined in terms of a challenge that an organisation seeks to overcome. This challenge could be solving a problem or exploiting an opportunity. In different fields of strategy, the challenge could be functional (enabling part of an organisation to perform some function) or communicative (communicating a message or better articulating the brand). Typically, the desired outcome of strategy design is specified in a ‘strategy scope’ or a strategy scoping document (the ‘brief’ for the strategy).

2. In pursuit of this outcome, strategy design has four key characteristics:

a. The strategy design process is creative-by-nature. This involves a cycle of:

i. divergent thinking, which tries to imagine all possible ideas by which a bounded creative challenge could be met, and

ii. convergent thinking, which involves creatively selecting, combining, hybridising and synthesising the ideas created in divergent thinking to find the best solutions to the given bounded, creative challenge.

b. The strategy design process is iterative and progressively more narrowly focused. This involves repeated cycles of the divergent / convergent thinking process, but on each iteration, the bounded creative challenge has narrowed compared to the preceding cycle. So, whilst working on the conceptual principles of strategy, we seek to tackle a broad creative challenge – how in principle could we realise the aspirations set out in the strategy scope? However, after a preferred set of strategic principles have been agreed, strategy design will move on to tackle a narrower creative challenge – what are the specific, high-level strategic goals that could achieve the aspirations set out in the strategy scope?

c. The strategy design process produces outputs that can be used to test the fitness-for-purpose of the strategy it has created. Strategy design always produces an output at the end of its process (the Strategy). The ultimate test of any strategy is whether it serves the purpose for which it was designed; does it achieve its intended aspirations, as set out in the strategy scope? In addition, strategy design typically produces an output at the end of each iteration of the strategy design process. This is used to check that progress towards fitness-for-purpose is being maintained and that drift, out-of-scope of the original strategy scope, is being avoided.

d. The strategy design process is often non-linear. Sometimes you will come up with a set of conceptual principles you think matches the strategy scope perfectly, until you move on to define the high-level strategic goals and you can’t make it work. So, you loop back to and come up with a different set of conceptual principles. Occasionally, you might also loop forward – how are the conceptual principles we’ve just come up with likely to land within the organisation? So, whilst the strategy design process, overall, can be seen as iterative and progressively more narrowly focused, the sequence of steps in that process is not simply sequential.

So far, this is ‘merely’ design thinking – it has all the key characteristics by which we defined design thinking previously.

But is strategy design ‘deep design thinking’?

6.3 Strategy Design as Deep Design Thinking

In Chapter 4 we introduced deep design thinking as follows:

A great deal of design thinking is about setting boundaries and maximising creativity within those boundaries.

A great deal of deep thinking is about crossing boundaries and challenging boundaries. We explored how ecological thinking deepened, firstly by crossing into the disciplines of mathematics, genetics and animal behaviour and secondly by crossing over to very different domains of application. Studying planetary habitability and the gut microbiome are still applications of ecological thinking: they are still about the interactions of organisms and their environment. They are just very different organisms in very different environments.

Deep design thinking BOTH sets boundaries AND challenges/crosses boundaries as a core part of its process.

My view on strategy design is that it is almost impossible to do well without challenging and crossing boundaries. In my more fanciful moments I could even imagine it become an epitome of deep design thinking. But I’m getting ahead of myself.

We talked of deep design thinking traversing boundaries from both a systems perspective and a stakeholder perspective. Let’s explore these one at a time.

Strategy design from a systems perspective. A good strategy reaches from the top to the bottom of an organisation, and, in certain key regards, reaches beyond the organisation. Strategy is usually owned by the Board and is used to hold the CEO to account for the organisation’s overall direction and performance. It should, therefore, be a prominent presence in the CEO’s day-to-day working life and a tangible influence of their decision-making.

The power of that good strategy would, however, be greatly diminished if it never left the executive corridor. One of my favourite strategy stories that I’ve written about before is Hornby Trains pivoting their strategy 20 years ago. They decided they no longer sold toys for kids and instead sold scale models for adult collectors. With that strategy-in-a-sentence they transformed the way everyone in the company thought about their jobs. Marketing and sales had new customers to focus on. Product designers had new criteria for choosing which product to develop next. Packaging designers had new features and qualities to highlight at point-of-sale. Beyond the company, new retail relationships needed to be established, new PR relationships with media outlets needed to be built and whole new constituency of experts, enthusiasts and hobbyists needed to be engaged with. In five years, Hornby’s share price increased over 7-fold.

Strategy design, therefore, needs to cross multiple system levels:

• The lived working experience of individual front-line team members;
• The functioning of parts of the organisation (e.g. teams, departments, business units);
• The operation and performance of the entire organisation;
• Relationships between the organisation and its external stakeholders;
• The global impact of the organisation and its activities (e.g. climate impact, pollution).

Strategy, as it develops, needs to be informed by people, data and insights from all of these system levels. Strategy, once completed, ought to inform and direct decisions and actions of people and groups at all these system levels.

Strategy design from a stakeholder perspective. Whilst this systems perspective requires taking many stakeholders’ views into account, there is much more to the stakeholder perspective on strategy than this. Here are some of the key stakeholder perspectives that we haven’t yet covered:

• The leadership perspective – how do we lead the strategy design process? How do we make the strategy aspirational and stretching yet credible and attainable? How do we creatively imagine our future whilst keeping our creativity grounded in a robust evidence-base?
• The data analyst perspective – how do we portray the current circumstances of the organisation in ways that are conducive to strategy design? How do we evaluate strategy ideas to keep creative thinking in the Goldilocks zone – constrained enough to be focused yet not so constrained as to stifle innovative possibilities?
• The finance perspective – how do we meaningfully differentiate the financial imperatives that the strategy must achieve from the financial preferences we’d like the strategy to achieve? How do we project the costs of activities we’ve never undertaken before and how do we estimate revenue from services we haven’t yet begun to develop?
• The HR perspective – how much change can the organisation accommodate within a given period of time? How do we performance-manage innovation? How much tolerance of failure is necessary in pursuit of innovation?
• The ‘community’ perspective – how much should staff across the organisation be involved in strategy design? How much should they be informed about the process, the decisions needed and the evidence base upon which these decisions will be made? To what extent should they be consulted about drafts of the strategy as it evolves?

So, strategy design needs to carve a complex navigational path through these different stakeholders.

Strategy design as deep design thinking – a worked example. Imagine we are mid-sized commercial enterprise with a current strategy soon to expire. The Board has informed the CEO that they look forward to her proposed new strategy in six months’ time. Her first task is to scope the new strategy. This will define the main strategic opportunities and challenges and identify its main drivers and aspirations. She decides that a three-year duration is the correct lifespan for the new strategy and sets her insights and analytics teams to work, producing projections and data packs for a forthcoming strategy scoping workshop with her senior leadership team. She is also aware that her front-line teams interacting directly with the outside world (customers, suppliers, partners) often have some of the best, real-time insights into the organisation’s situation. She decides to take time to mine some of this raw data. She talks to sales teams to learn about prospects and competitors. She listens to customer support to hear about customers struggles and successes. She meets suppliers to hear about ways we could innovate across the entire supply-chain.

She has just challenged and crossed many boundaries in her strategic thinking. Originally, her boundaries were at their broadest: ‘the future of the entire organisation’. She then narrowed these boundaries massively, whilst talking to front-line teams about their experiences with individual customers and prospects. Then came the hardest part. She had to expand her boundaries back to organisation-wide strategy and assimilate the knowledge she had gained at a whole different systems-level. When the customer service team told her about the struggle many small clients had in using one of their services, did this mean we, as an organisation, had issues with our usability design and usability-testing? When the enterprise sales team told the painful story of how they’d lost two of their biggest sales prospects at the last minute because a competitor had developed a feature they had never even thought about, did this suggest they were falling behind in their innovation?

As part of strategy scoping, the senior leadership team agreed on the main purpose of this new strategy. As a publicly listed company with large institutional shareholders, we need to achieve consistent profit margins at least as high as our sector competitors. In addition, since we have recently invested heavily in both staff recruitment and staff development, we seek to achieve these profit margins without having to reduce staff costs significantly. Finally, we need to progress our environmental credentials over the next three years, in particular reducing our carbon footprint.

With strategy scope defined, we have reached the first transition point in the strategy design process. We announce the start of strategy development to the organisation and open up communication channels for all staff to be able to make suggestions and offer ideas about the new strategy. Each member of the senior leadership team also discusses the detail of the strategy scope with their own leadership teams and passes their feedback to the CEO.

A few significant challenges to the strategy scope arise from this process. Several staff suggest we should have environmental and social ambitions beyond carbon emissions and the CEO decides to add a strategic review of our environmental and social governance to the strategy design process. Whilst it is broadly welcomed that cost reductions in staffing are not a strategic priority, it is suggested that cost reductions in other areas should be. The overall costs of our buildings and estate as well as our supply chain costs are highlighted. Again, the CEO adjusts the strategy scope to incorporate these ideas.

The revised strategy scope now defines the creative boundaries for the next stage of the strategy design process. The CEO sets each member of her senior leadership team with the task of exploring all the possible changes the organisation could make over the next three years to maintain healthy levels of profitability, given the expected cost inflation, price erosion and the investment likely to be needed for environmental and social initiatives.

This next stage of the strategy design process produces many ideas for strategy, some of which could work in synergy together whilst others are in direct opposition to each other (e.g. invest heavily in innovation and launch lots of new services Vs double down on the refinement and optimisation of our existing services, whilst investing heavily in their marketing and sales). With some additional work, the strategy ideas are clustered and aggregated into a set of high-level strategic choices. To evaluate these, the CEO sets up two working groups. The first group is tasked with evaluating the defined high-level strategic choices within the strict framework of the strategy scope. The second group is tasked with exploring what might be missing from the defined strategic choices. Are there any radical, wild card, moon-shot ideas that ought to be considered as part of strategy design? It is this second group that make strategy design a deep design thinking process. They are the ones to challenge and potentially cross the boundaries defined in the strategy scope.

The conclusion of this process is a further refined and developed strategy scope. It retains its core aim of ‘market-expected levels of profitability’, but some strategic options are accepted (investing heavily in innovation to develop new services) whilst others are rejected (investing heavily in marketing and sales of existing services).

There is also one ‘boundary-crosser’ that unexpectedly entered the realms of strategic possibility. Whilst the first working group was exploring the costs of modest improvements in carbon emissions, the second working group asked the question: ‘How much would it cost to become fully carbon neutral in five years’ time?’ This crossed two boundaries. Firstly, it greatly exceeded the strategy scope which sought to ‘make incremental improvements to our environmental credentials over the next three years, in particular reducing our carbon emissions’. It also exceeded the strategy lifespan, by exploring a five-year initiative for a three year strategy. Despite this, it raised an interesting provocation: could we deliver a full solution to an issue (net zero carbon emissions) in five years instead of a partial and modest solution in three years?

So, by:

• being aware of the system boundaries and the stakeholder boundaries within which strategy design operates;
• using these boundaries constructively to focus creative strategic thinking without stifling it during divergent and creative thinking cycles;
• challenging these systems and stakeholder boundaries vigorously during the original strategy scoping process;
• challenging these systems and stakeholder boundaries repeatedly at each transition point during the strategy design process …

we get:

• the rigour and structure of a design thinking process to help prevent strategy design descending into chaos;
• the breadth of context and the depth of strategic innovation that comes from deep design thinking.

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Goal Atlas works with strategy leaders and teams on all aspects of strategy design. Get in touch if you think we might be able to help.

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