Chapter 1

What Is Strategic Leadership?

Imagine that you are standing on a beautiful beach, with the sand between your toes, looking out over the deep blue-green water. You feel a fresh and invigorating breeze on your face. You hear the roar of waves breaking in the distance. Every once in a while your warm feet feel the relief of cool water when a particularly strong wave makes its way up the beach.

Watching the ocean has a purpose, for you have a surfboard in hand. You’ve practiced at home: lying on your board in your living room and working to pop up to your feet in a quick and flowing motion. You’ve practiced with small waves: picking those big enough to pick you up, but not big enough to toss you over.

Now you want to try the bigger waves. You walk into the water, get on your surfboard, and paddle out to where the waves are breaking. The wind is strong today, and the waves are big. As you reach what appears to be the best spot, waves are crashing around you, and you are tossed about in the water. You try to catch a wave, turning the nose of your surfboard toward the beach and popping up to your feet on the board, but your timing is off and you find yourself back in the water with the wave and your surfboard crashing over you. You try again, and this time you make it to your feet, but as you stand up, you lose your balance and fall. You try again but are unable to catch the next wave as it rapidly passes by you. Attempt after attempt is met with sour results. You try to figure out what is going wrong, but waves are passing you by and your day of beautiful surfing is turning into a day of frustration. Paddling back to shore, you are not sure what you did wrong, but you hope that the next time will produce a different result.

Now imagine yourself at work. You’ve worked hard for a number of years and have been rewarded with several promotions. But you’ve recently learned from your boss that while the organization values your operational leadership skills, people do not view you as a strategic leader. You asked your boss what that means, only to receive a long and confusing reply without any specifics. Just as it’s difficult to learn to surf when you don’t know what you’re doing wrong, it’s also difficult to become strategic when you don’t understand how you are not that way now and no one can tell you what to do differently.

Increasingly organizations are calling on people at all levels to be strategic. Even if you have not heard that you need to be more strategic, we bet you can think of others with whom you work who need to develop their strategic capabilities. However, the path to that end is neither clear nor well defined. In some ways, it may feel a bit like learning to surf. You find yourself in the middle of chaos, business issues and initiatives swirling all around you like waves. You’re not quite sure which one calls for your best energies (which waves to catch), and even if you pick one, you might not be able to find your balance and ride it to a satisfactory conclusion.

Our intent in this book is to help you become strategic. We also intend to help you help others throughout your organization become more strategic and help teams with strategic responsibilities to meet those demands more effectively. In this chapter, we lay a foundation and explore the nature of strategic leadership as we consider the following questions:

• What are the definition and focus of strategic leadership?
• How does strategic leadership differ from leadership?
• Who should be strategic?
• How is “being strategic” about making strategy?
• How is “being strategic” about making strategy come alive in the organization?

With this groundwork in place, we will turn our attention in successive chapters to the specific question of how individuals and teams exercise strategic leadership.

The Definition and Focus of Strategic Leadership

Individuals and teams enact strategic leadership when they create the direction, alignment, and commitment needed to achieve the enduring performance potential of the organization.

This statement is a real mouthful. But because it encompasses all of the critical elements of strategic leadership, we offer it as our definition. The focus of strategic leadership is the enduring performance potential of the organization—achieving the potential of the organization over time so that it will thrive in the long term. This is true whether the organization is for profit or nonprofit, governmental or nongovernmental. It depends only on whether your organization seeks and achieves enduring capabilities that provide distinctive value to stakeholders over the long term in whatever sector your organization operates or whatever bottom line you are measured by.

Later in this chapter, we discuss the strategy process in more detail and how to use it to help achieve enduring performance potential. We begin by considering two organizations that demonstrate the difference between an organization that achieves enduring performance potential and one that did not achieve that potential: IBM and Digital Equipment Corporation (DEC). Both companies faced challenges over the course of many years but navigated those differently and with different enduring results. IBM was founded in 1911 as the Computing Tabulating Recording Company, and in 2012 it was ranked the ninth most profitable company based in the United States (“Fortune’s 20 Most Profitable Companies,” 2012). DEC was founded in 1957 and ceased to exist after being acquired by Compaq in 1998. We focus on a particularly turbulent time in the industry: the 1990s.

IBM: A Strategy Story

In 1993, many experts in the technology industries had concluded that IBM was inching toward its last days as an organization. Although the company had its most profitable year in 1990, the early 1990s saw big changes in the world of computers. Smaller, more nimble companies were innovating their way into the hearts of consumers and businesses, and the traditional big computers that IBM produced were seen as outdated, old technology. IBM stock had dropped from its 1987 high of forty-three dollars a share to less than thirteen dollars a share at the end of the first quarter of 1993 (Gerstner, 2002). Lou Gerstner joined IBM as its CEO in April 1993. IBM was on the verge of being split into autonomous business units when Gerstner arrived, a move that would have dissolved the organization that had long been a computer industry icon.

Gerstner chose a different path for the company. He kept the company together and took critical and bold steps not only to keep the company alive but to revitalize it to the point where it again led the industry. Most notably, Gerstner adopted a new strategy that moved the company from a product-driven approach to a service-driven approach. This was no easy task. It required a complete retooling of the people, processes, and systems in the organization. But the work paid off, and IBM’s stock rose every year except one until Gerstner retired early in 2002.

IBM continues on the path of constant retooling among segments and markets served. According to its website, in 2000, 35 percent of its pretax income came from hardware/financing, 38 percent from services, and 27 percent from software. By 2012, that distribution had shifted to 14 percent from hardware/financing, 41 percent from services, and 45 percent from software. Software alone is expected to bring in 50 percent of segment profit by 2015. Similar changes are being made regarding the geographic reach and scale. In the year 2000, 11 percent of revenue came from growth markets. In 2012, that figure was 24 percent, and it is expected to be 30 percent by 2015. Clearly IBM continues to identify and execute changes needed to perform as the industry shifts and grows.

Digital Equipment Corporation: A Strategy Story

Contrast IBM’s story with the story of one of its key competitors, Digital Equipment Corporation (2004). Ken Olsen founded DEC in 1957 and ran the company until the 1990s, when Robert Palmer replaced him. DEC was known for several advances in the computer industry, including the first commercially viable minicomputer and the first laptop. It was also the first commercial business connected to the Internet.

With more than a hundred thousand employees, DEC was the second-largest computer company in the world at its peak in the late 1980s. But it does not exist as an organization today. With the successes of the 1980s, the company became more and more insular. Its products were well designed, but they would work only with other DEC products and so customers tended to overlook them. Olsen also believed that DEC’s products, with their superior engineering, would stand alone and did not need advertising. When the new RA-90 disk drive came to market very late and several other products ran into trouble, competitors overtook the company with similar products at lower prices. DEC experienced its first layoffs in the early 1990s. The company was sold to Compaq in 1998, and then Hewlett-Packard acquired Compaq in 2002. Clearly DEC was led with great fervor during its early years, and the company was able to achieve great things. But that greatness was not sustained.

What Makes Strategic Leadership Different?

What led IBM to thrive and DEC to die? Why was IBM able to weather a very difficult storm, make necessary changes, embark on a new path, and reach success in a new way, while DEC was swallowed up by its competition? Was it just that IBM had smarter people? We know the DEC employees were smart enough to develop new technologies that pushed the technology...