The Diamond of Strategic Leadership.
What growth firms often get wrong about strategy.
Vision > Strategy > Operating Model > Organisation Design. Four familiar terms with often loosely understood meanings. Effective CEOs spend the right amount of time on each, at the right cadence. Many firms don’t, leading to ‘strategic incoherence’.
This is a note about cadence: how leaders of growing firms can most productively allocate their — and their top team’s time across the year. All CEOs understand the vital importance of stepping back regularly from the day-to-day running of their firms to assess the future and to ‘think strategically’. But in a surprising number of firms such thinking-time is inefficient: episodic, poorly linked to previous such discussions, and disconnected from the design of the organisation which needs to deliver it. This is strategic incoherence. It is common, and it is a strong predictor that well-intentioned strategy work will gather dust rather than achieving impact. In fact, within the broad umbrella of ‘strategic thinking’, four quite distinct concepts — vision, strategy, operating model, and organisation design, all need space, at different cadences, and in a sequence which matters. CEOs who build these cadences into their year-round calendar have a better chance of achieving strategic coherence, and hence impact. Call it the diamond of strategic leadership.
The Four Pieces of the Diamond of Strategic Leadership
It isn’t easy being a CEO. CEOs must simultaneously balance two roles: working in the business (the day to day winning of customers, driving revenue, delivering product etc) and on the business (being thoughtful about what kind of ‘house’ you’re building as you grow). For founders and CEOs of growth-stage firms this latter role is harder, because the rate of change of their businesses is often greater; and moreover they tend to have less strategic support infrastructure around them (strategy directors, established planning cycles, expensive consultants etc). Consequently many founder CEOs plan their annual strategic work calendar using an element of gut feel. A strategy offsite usually makes everyone feel quite good. And it’s not hard to come up with some strategic-sounding questions to talk about, “Where will we be in 5 years… what could kill us?…”. But in a surprising number of firms, such gatherings feel disconnected from the day to day life of the business; fun, but episodic.
Indeed, episodic strategy offsites are a bit like handing everyone an (unfamiliar) musical instrument for a day, and expecting to come out with a concert-level performance. True strategic coherence — between vision, strategy, operating model, and organisation design — requires constancy. And it needs CEOs to ground their precious investments in strategic activity in a meta-framework which balances them, links them to each other, and to the actions they imply. Here’s a practical guide to how:
Vision
Vision is not strategy. Vision is the destination; strategy the means to get there. Strategy needs to be addressed quite frequently (see below); vision much less so.
A fully developed vision, in management-science terms, is actually a composite of mission, purpose and values, as well as articulated beliefs about the future. But at its core, vision is the simply articulated and motivating ‘north star’ aligning the firm’s efforts. It need not say how that is to be attained (or even, strictly speaking, even be attainable!), but it should say why. It inspires. Think of NASA’s ‘to put a man on the moon’. Disney had: ‘to make people happy’. But even firms in seemingly mundane industries can conjure aspirational visions. One favourite of mine is that of Dutch dairy producer Friesland Campina: “We are fascinated by the power and potential of milk… We aim to help people to move forward by getting more out of milk” !
The related mission statement expresses vision as a practically attainable goal or target — (“a computer in every home” — Bill Gates). It is one part of a fully articulated vision, alongside, increasingly, a firm’s values. Netflix is famous among management theorists not only for its growth, but for its ‘culture deck’, a kind of manifesto for its values applied to the way it hires and develops its people.
The last decade has seen much increased thought around the purpose of firms, driven in part by a rising Gen Z workforce. The rise of B-Corps, which explicitly balance the goal of profit against social and environmental performance, is challenging quite fundamental assumptions around the primacy of shareholder value creation. Firms like Patagonia, an outdoor clothing maker, are now successfully fusing business with activism.
So what do CEOs need to do here? Often not much, as visions should be constant. If they work, they don’t need updating each year as strategy does, because their constancy is the point. Some PLCs visit their visions every 5 years. Governments often develop visions for entire nations in relation to perceived epochal change (for example; A Vision for Scotland in the Knowledge Economy). But vision work is more often by exception, not routine. For many start-up and growth-stage firms, the vision is implicit in the firm’s founding idea.
One area where many growth firms could do more is in unpacking and articulating their visions to make the implicit explicit. For many young firms the vision in its fullest form is largely in the heads of the founders, and what little IS written down is in fundraising packs — which are imperfect tools for managers. As firms grow to the point that the founders can no longer know every staff member, so founders must develop a cadre of senior managers that can make decisions in an aligned way, even when they’re not in the room. Some talk of the need almost to ‘clone’ their internal compass — their decision making frameworks and heuristics. Writing down a manifesto is a good way to do that. Hootsuite’s ‘Peepsbook’, and Bridgewater Associates’ ‘Principles’, are good examples of this crystalisation a firm’s founding ethos.
Strategy
Of the four pieces of the diamond, strategy is likely the most familiar — although, as the author Richard Rumelt recently observed, business leaders often misunderstand the actual meaning of strategy. Good strategy is about framing and making choices. It stems from the vision, but aims to map it onto the business and its markets; to transform vision into value. It addresses the big questions of where in the market to play (positioning), who to serve (customers, segmentation), and how to win (core competencies). And it goes as far as guiding the firm’s allocation of resources; capital, effort etc
Consequently, strategy should be reviewed regularly. Just how regularly is a point of discussion among management theorists, but depends on the dynamics of both the firm and its industry. Anything from 1 to 3 years is normal in my experience, while some recent theories, for example BCG’s ‘always on’ strategy, argue for almost quarterly revision of some elements, especially in dynamic industries or for high growth firms.
Strategy ≠ Strategic Planning. It is just worth stressing the difference between strategy and strategic planning. Strategy should be a heads up, norm-challenging, creative-thinking activity. It shouldn’t be overly constrained by a schedule, because events and insights may strike at any time. It is about synthesis. Strategic Planning in contrast, is about analysis — and, well… planning! It stems from the strategy and drives the actual work of the firm for the year ahead. Henry Mintzberg remarked “Planning cannot generate strategies. But given viable strategies, it can program them; it can make them operational”. So unlike strategy, strategic planning absolutely should be done to a schedule — annually — and ideally ahead of financial planning, target setting and budgeting; although it’s remarkable how often it isn’t!
Operating Model
What is an operating model and does it matter if you don’t have one? The good news is that you do have one; you just may not have thought about it this way. The operating model is the abstract — and visual — representation of the organisation as a system, in the context of its market and competitive environment; and of how this system delivers value to its customers. It is strategy’s oft overlooked cousin. Visual canvases of operating models such as the one below are increasingly being used to shape thinking on things which strategy can easily undercook: the boundaries of the firm, for example (what it does in-house and what it outsources) and its core competencies.
The visualisation is more than just a presentational tool: it highlights that a firm’s operating model is something which should be designed intentionally. Operating models stress the linkages and dependencies between the parts of the system; for example how decisions on outsourcing affect the firm’s core competencies and vice versa, appraisal of which is often ‘underdone’ in strategy processes. And by emphasising the interactions — and balance — between the system’s constituent parts, it helps engender overall coherence.
Unlike strategy, the operating model view of the firm does not emphasise plan or action. But the operating model is a bridge between strategy (with which it should align) and organisation design, for which it forms the blueprint. Thus the operating model view of the firm is a good complement to its strategy. They are best developed in concert if not concurrently.
Organisation Design
Last but not least, organisation design, by which we mean not the kind of incremental changes imposed by a senior hire here, or a departure there; but the fundamental review and (re)design of the firm’s structure, roles, processes, incentives and even governance which follows logically from the topics above. I’ve written about the theory and process of organisation design — and in particular about how best practice has changed over the last decade — elsewhere. Here the key question is simply when or at what cadence to take it on. This matters because of the inherent costs involved; in disruption, uncertainty and, potentially, in staff morale. Evidence across industries suggests that CEOs tinker too much. In one recent McKinsey Survey, less than a quarter of respondents affected by reorganisations felt them to have been successful. So when should CEOs act?
First, a change in strategy always requires at least a review of the organisation’s fitness-for-purpose to deliver it. If this sounds obvious, consider the following example: In early 2021, a major British food-sector plc unveiled a beautifully crafted new strategy to the city, with a set of new strategic priorities, each underpinned by one bold initiative. The strategy was well received, but by Autumn it was clear the firm was struggling to mobilise against the initiatives at the same time as delivering ‘business as usual’, leading them to seek outside support. Staff complained of lack of bandwidth. Managers struggled to get ‘traction’ for the strategic initiatives. One look at the organisation structure of the firm showed why: it was unchanged, and entirely designed to deliver… business as usual! This is strategic dissonance — a strategy fundamentally misaligned with the organisation supposed to deliver it. It is a short route to failure, and yet is surprisingly common.
Growth-stage firms have their own dynamic driving the need for organisation redesign as they hit certain milestones or rubicons of scale. Passing 100 staff for example, 300 staff; becoming a multi-country operator for the first time, or multi-product, or completing a first acquisition. All these are triggers for redesign.
Effective CEOs impose a meta-framework on their strategic work at all levels. They cover each of the four quadrants of the diamond of Strategic Leadership: vision, strategy, operating model and organisation design, in an integrated way, and each on its own cadence. An illustration of one possible resultant cadence of strategic work over a three year timeframe appears in Exhibit B below:
So to sum up, cycle through all four pieces of the diamond of Strategic leadership in an integrated way — building them into a long-range strategic leadership agenda spanning several years.
Vision. Do once. Go deeper if something fundamental has changed in the world the firm inhabits or in its purpose. Otherwise go further than you probably have already in codifying what the vision means for managers up and down the firm. Write a manifesto to crystallise the firms ethos
Strategy. Every 1–3 years depending on your stage and industry. Note, do not confuse strategy, which is a creative process of synthesis, with strategic planning, which is about analysis. Strategic planning should be annual, it should drive detailed goal setting around the firm’s teams, units and functions, and it should precede financial planning!
Operating Model. When you do strategy, articulate the operating model as well. This is the oft overlooked step which bridges from strategy to organisation design
Organisation Design — should always be reviewed in light of a new strategy. Growth stage firms when they cross certain scale milestones. Otherwise resist frequent tinkering as it saps productivity!
CEOs who do this ensure their precious ‘step back’ time is efficiently spent, and that their organisations, at all times, have strategic coherence.
