Strategic Leadership and Decision Making

2

THE STRATEGIC ENVIRONMENT

You are living in the period of time that will produce more change for humanity than any previous era in history. It is a time of extraordinary importance that will fundamentally reshape almost every aspect of your life during the next two decades. Wholesale change is taking place in almost every segment of your reality-and the pace will only increase in the coming years.

John Peterson

The Road to 2015

The process of strategic leadership and decision making begins with an assessment of the environment within which it occurs. Strategy can be compared to a plan, except it is broader in scale, long term in nature, and surrounded by more uncertainties. The strategic choices of organizations-and nations-also may be limited by constraints imposed by their environments, e.g., the state of near-famine in North Korea. Both North and South Korea desire integration of the peninsula. However, the two concepts of how this would happen, and which political system would become dominant, are radically different. Thus, environmental factors are influencing capabilities for strategic choices that may not be fully played out for many years. Perhaps previous strategic choices by each of these nations, dating back as far as three or four decades, may well have shaped the constraints and opportunities in the present environment.

This concept of shaping the future is important for decision makers. Successful strategic decisions will, either by design or accident, shape both future conditions and the competitive advantage enjoyed by the organization or nation at that time.

A GENERAL MODEL OF HOW ENVIRONMENT PROMPTS

STRATEGIC DECISIONS

ENVIRONMENTAL DEMANDS AND CONSTRAINTS

STRATEGIC ASSESSMENT

STRATEGIC DECISIONS/PLANS

The significance of competitive advantage stems from the competitive nature of open systems. Organizations--and nations-- are open, or only partially bounded, systems, that are dependent on their environment for resources. When resources are in short supply, organizations-and nations-must compete for them. They do so by scanning forward, creating estimates that enable them to identify long-range goals, and put into motion courses of action designed gain competitive advantage.

COMPETITIVE ADVANTAGE

AN ATTRIBUTE OF AN ORGANIZATION OR INSTITUTION- OR NATION- THAT ENABLES IT TO COMPETE MORE EFFECTIVELY FOR RESOURCES, AND THUS TO SURVIVE.

THE STRATEGIC SCAN

The purpose of national security strategy is to set and achieve objectives that, in the long term, will provide a high level of security for the nation and its citizens. This purpose is expressed in a process that scans the strategic environment, forms an assessment, conceives long-range objectives, and formulates long-range plans to achieve them.

KEY QUESTIONS ABOUT THE STRATEGIC ENVIRONMENT

This strategic scan is extraordinarily difficult, and examples of inaccurate scans abound. Some of these can be attributed to the fundamental difficulties involved in "seeing the future." It seems paradoxical to speak of an environmental scan reaching out 20+ years, and, in fact, this is possible only in the broadest terms.

Strategic decision makers must gain a sense of dynamic forces in their environment to create good strategy. One building block is to obtain a sense of history, coupled with the reflection needed to examine the flow of events over time in order to understand the cause and effect linkages that have been operational. A frame of reference must be built.

A second critical building block is the conceptual skill and openness needed to test the historical frame of reference over time, to ensure it is still representative of the real world. This obviously speaks to the use of feedback loops.

Barriers to accurate strategic scans exist in both the environment, and in the decision maker. George (1980) describes many of the barriers internal to the decision maker. They include his/her personal view or stake in the outcome, which may make objective considerations difficult.

Other barriers are the personal values of the decision maker that might lead to evaluations not shared by other players; the risk that a course of action might fail and threaten self-esteem; the risk that a course of action might hurt career prospects; and the risk that advancing a course of action might lose the support of key constituencies.

The strategic decision making process must deal with the four barriers described in the previous chapter: rate of environmental change (volatility), unpredictability of change (uncertainty), the intricacy of key decision factors (complexity), and vagueness about the current situation and potential outcomes (ambiguity).

Rate of Change: Volatility

Peter Vaill coined the phrase "permanent white water" to describe the rate of environmental change in the world as we know it. Futurist John Peterson estimates that the total amount of information in the world is doubling every 18 months or less. And new technology is making it possible to generate even newer technology faster; microchips now being produced are themselves being drawn by computers, because they are too complex for humans to construct by hand.

A ROBUST SYSTEM

CAPACITY FOR TIMELY SYSTEM CHANGE. EITHER ANTICIPATE OR ADAPT TO ENVIRONMENTAL CHANGE TO MAINTAIN COMPETITIVE ADVANTAGE.

This relevance of volatility to strategic leadership and decision making stems from the competitive nature of the world. Nations, states, organizations, societies- systems and subsystems- all seek increased wealth or power, or both. But power and wealth are finite commodities, so the stage is set for competition. Even when great strategic alliances such as NATO are formed, it is with a view toward attaining a competitive advantage in relation to another strategic alliance.

However, the character of competition is also changing. For example, a competitor can be hurt by rapid obsolescence of its capital-intensive weapon system, so it might make sense to pursue new development with just that aim in mind-not the destruction of that system on the battlefield, but rather by superiority on the balance sheet. Just such a strategy was a factor in the planning of weapons systems development in this country from the late 1970s until the collapse of the Soviet state in 1989. That world-changing collapse came when the Soviets could no longer compete economically.

Finally, much of the incredible success of coalition forces in the Persian Gulf War grew from two technology advances: imaging technology that enabled (primarily) U.S. armor to see and engage Iraqi armor outside the target acquisition range of the Iraqis; and precision guidance technology that enabled aircraft to engage Iraqi forces outside the effective range of Iraqi armor. The critical lesson is that both technology advantages were outcomes of U.S. decisions made years earlier directing capital investment into research and development, in contrast to Iraqi decisions to continue capital investment in amassing products of old technology.

It would be simplistic to leave this example just at the level of decisions about research and development. Both sets of decisions also reflected underlying assumptions by strategic leaders about the nature and rate of change in the world environment. One set of assumptions was accurate; one was not. Environmental change often determines where the point is reached when a change in policy should be initiated. There may be only a thin line between success through persistent advocacy for change, and failure because of inability to change.

History is littered with examples of strategic decision makers who did not see change in time. The advent of air power is an example. In the 1920s and 1930s, promising careers were terminated because of air power advocacy. Yet, World War II saw the first decisive naval engagement where no surface ship fired at an enemy surface ship- the Battle of the Coral Sea. Only the advent of World War II's armored formations quelled the remaining horse cavalry champions. And just a few years later, only the influence of the Congress kept a nuclear submarine advocate on active duty.

The lesson is clear. Without visionary leaders who can guide reformulation of strategic policies and objectives, the nations, organizations and societies they lead are placed at competitive disadvantage. And change is volatile, driven on the "hard" side by technology and on the "soft" side by advancing communication's capabilities. The challenge to strategic leaders, to their leadership and decision making processes is increasing at a critical pace.

Uncertainty About the Present Situation and Future Outcomes

Strategic leadership is complicated not only by the rate of change in the global environment, but by uncertainty about what the effects of even known changes are likely to be. This uncertainty results from both the complexity of systems and subsystems at the strategic level and from incomplete knowledge about the current situation. Uncertainty also arises from the competitive nature of leaders on the world stage who understand that significant competitive advantage often is gained through surprise. Therefore, strategic actors seek to conceal their strategic directions, particularly their means for achieving their directions, from their competitors.

The deception planning integral to achieve surprise for Operation Overlord-the Allied invasion of northern France in 1944-is an excellent example. Through a complex set of channels, information was fed to the German High Command that led to a devastatingly incorrect estimate of the situation and Allied intentions. These channels included the "turning" of the entire Axis spy network in Britain, the fortunate presence of dedicated double agents, and a huge electronic shell designed to show the presence of a powerful Allied force in England opposite the port of Calais. So, strategic leadership and decision making sometimes must resolve uncertainty by penetrating an enemy's carefully laid screen designed to confuse.

Multiplicity of Key Decision Factors: Complexity

On a global scale, the demise of the U.S.S.R. as a superpower, because of its inability to compete economically, should have been predictable. In fact, this outcome was the objective of U.S. resources allocation strategy during the Reagan era. Perhaps today's strategic policy makers do not fully understand the complexity of the multipolar world that now follows the end of the U.S./USSR bipolar world, and have not yet developed an adequate philosophy to guide the formulation of national objectives for the 21st century. In consequence, much debate continues about future strategic courses of action.

The nation's long-term energy policy provides a good example. Faced with continuing depletion of global petroleum reserves-and with accumulating environmental damage as a result of burning fossil fuels-a long-range energy program would seem essential. Our society rests on the effective operation of many complex subsystems, three of which are agriculture, manufacturing, and transportation.

Distress in one means the others cannot function effectively. In particular, without the transportation system, large scale urban life as we know it would not be possible. Yet all these systems depend on fossil fuels, and the nation has not moved significantly toward decreased dependence on these fuels, particularly imported petroleum, in the face of known increased competition for petroleum as developing nations industrialize.

The significance of this lack of movement is apparent when the delicate balance of the monetary system and its sensitivity to inflationary pressures, are taken into account. The near-cataclysmic response of the national leadership to the blip in gasoline prices in the late spring and summer of 1996 suggests how delicate the balance is. A rise in prices of less than twenty cents per gallon triggered a sell-off from the strategic oil reserve and a call for temporary repeal of a part of the federal gasoline tax. Such a blip is certain to re-appear in much magnified form in the future if a valid, long-term strategic policy is not developed and implemented.

Another example is the debate about capital gains taxes. The data seem to show that a high capital gains tax suppresses federal tax income from capital gains. A high tax rate inhibits investor sale of capital investments in order to realize gain. So, a lower tax is better for deficit reduction, an apparent contradiction. But the question remains whether this is good or bad, even if it is true. It seems likely that a decrease in capital gains taxes would also tend to depress the stock market, as investors sell stock to realize gains. Is that right? If so, is it good or bad? And, for whom?

System complexity impacts hugely on the capacity of leaders as strategic decision makers to formulate and execute effective policy. Cause and effect relationships are difficult to see, much less assess, when there are many causes, and when many divergent effects exist. Determination of cause and effect relationships is made more difficult by uncertainty about the time lag of effects in complex systems. In addition, there may be many-linked cause and effect chains. A given initial cause may produce an effect that gives rise to a second-order effect which may, in turn, give rise to a third-order effect.

The challenge to strategic leadership is twofold: a frame of reference, or perspective, that is dynamic enough for the decision maker to recognize, understand, and explain to others; and a leader's mastery of decision tools and processes that enable him or her to bring a broader set of perspectives than just his/her own into the decision making process.

Lack of Clarity About the Meaning of an Event: Ambiguity

Ambiguity exists when a given event or situation can be interpreted in more than one way. System complexity contributes ambiguous meaning, as does uncertainty about the full range of factors operating in a situation. Ambiguity may also exist because the intentions of significant actors in the strategic situation may either not be known or may be misinferred. In intelligence work, for example, it is easier to provide an accurate estimate of capabilities than of intentions, because intentions often are cloaked inside the shell of a complex and effective deception plan.

The operations plan that was executed during the Gulf War seemingly was invisible to the Iraqis for at least two reasons. First, there was a deception plan, one that worked as well as the D-Day deception plan in World War II. In the Persian Gulf, the Marine forces may well have been frustrated by their limited participation, but in all likelihood they saved many lives on both sides by tying down Iraqi forces on the coast. Second, control of the skies took the "eyes" away from the Iraqis, so that they could not see the massive maneuver to the west across the Saudi high desert. They misinterpreted what they could see, and were vulnerable to the end sweep by highly mobile coalition forces.

Leaders must expect to encounter ambiguity as they transition to more complex situations in their organizations. Strategic leaders also must do a great deal of consensus building, as a normal part of their leadership roles. The consensus decision making process is designed to uncover information not previously held, perspectives not previously understood, and knowledge not previously applied to the solution-generating task.

The challenge to strategic leadership is recognizing that the decision maker cannot have a "stand-alone" perspective, and that effective strategic decisions must flow from a managed process that produces a perspective through consensus that is broader than any single person probably possesses.

National Security Strategy

Volatility, uncertainty, complexity, and ambiguity (VUCA) are not independent concepts. While each may describe certain aspects of a decision task. Each feeds the other. Strategic policy objectives are formulated within the context of this VUCA world.

To say that there is a new world order, and that the United States is the single remaining super-power somehow gifted with the responsibility for global leadership, is to do no more than open the door on the process of strategic policy formulation. The hard work is in formulating policy objectives that are compatible with the world that will emerge over the next three or four decades. These are the policy decisions that will have added value to the world community as well as to the nation itself. This "new world" is now being shaped both by environmental forces and by the actions of key players on the world scene.

In 1980, the Tofflers wrote about a sea change-a contextual change of such mammoth proportions that old paradigms would no longer suffice. The Tofflers described two major revolutions that have transformed the course of human history, and asserted that we are now in the midst of a third revolution. The agricultural revolution began some 10,000 years ago, and the industrial revolution some 300 years ago. Each produced sweeping changes in how human effort was organized.

Now we have a third revolution-a third wave, a third age- the Information Age. With it comes an inundating wave of writings about what the information age is all about and what it will do either to or for us. The "third wave" is thought by many to be a dominant force transforming nations and societies, leading to a qualitatively different paradigm by which to interpret world events.

Just as the economic superstructure in the advanced industrial nations rests on food production, so the technology of the Information Age rests on the productive capacity of the Industrial Age. But the vast societal and cultural changes that are likely to occur later are unclear. The only certain things are that the world will get more complex, and will change in ways not clearly seen now.

The challenge for strategic leadership is to understand the dynamics of change that are now occurring, and develop the clearest possible visualization of the end results of change, with enough lead time to ensure a competitively advantageous position can be achieved.

VUCA as a Base

Coping with VUCA is the essence of strategic leadership. And, if the United States is to aspire to permanent global leadership, VUCA requires understanding different cultures, different kinds of national objectives, and different means other nations employ to achieve their objectives. And the logic for working effectively with nations around the globe must include not only competitive advantage for the United States, but "value added" for other nations.

We know what our existing knowledge lets us know and we see from our own perspectives, sometimes dimly. We make assumptions about other cultures, often mistakenly, based on what is reasonable in our own culture. We infer intentions based on what our intentions would be in that situation, "if we were they." Strategic leadership must, of necessity, be based on a broader frame of reference. Using a VUCA Time Horizon will help provide that reference.

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