Strategic execution involves encountering new, uncertain and complex situations. A strategy that does not encounter new uncertain and complex situations is not a strategy; it is an imitation of what has gone before. So what do we know about such situations, i.e. business challenges and opportunities that call for a fresh strategic approach?
First, no one person has a definitive solution when facing a new situation. Second, the most obvious solution, the one that springs to mind most easily, is unlikely to be the best – it is probably a rehash of an old idea. What you need is new ideas, options, choices and propositions. Third, there isn’t just one right answer for developing a strategy that creates value, there are many good ones and even more bad ones. What we need is one that is both good and that people are willing and able to execute.
What typically happens when we confront new, uncertain and complex situations? A group of people are assigned to tackle the issue. As individuals, people will have different ideas, reactions and responses to the challenge, opportunity or problem. Unfortunately, in our experience, the ideas that actually get voiced or heard tend to come from a minority: either the most confident, senior or vocal person. From this restricted set of ideas, it is often the safest option that is chosen because of our aversion to risk and fear of failure. The result is suboptimal, at best, and, at times, a disastrous approach is pursued.
Why cognitive diversity and psychological safety are key to strategy execution
Our research into cognitive diversity – people who think differently about new situations and approach them in different ways, and psychological safety – the extent to which people feel safe to share ideas, however controversial – provides interesting insights.
Primarily, a diverse group of people who are engaged and feel confident enough to express their views without fear of reprisals make better decisions.
When psychological safety is absent many people won’t voice their opinions because they’re worried about how they will be received and the possible negative implications for their reputation. It is not so much a fear of formal disciplinary action, which is rare, but much more about standing and respect within the group. They fear being sidelined and excluded. It’s the behavioural sanctions people impose when they work with someone they find disagreeable that over time undermines psychological safely.
Our research into the behaviours that create an environment of psychological safety highlight how the common dominant behaviours in large organisations need to change. The traditional management behaviours of directing, controlling and hierarchical decision-making erode psychological safety. The behaviours that enhance psychological safety are very different: inquiring, encouraging and experimenting.
"The ideas that actually get voiced or heard tend to come from a minority: either the most confident, senior or vocal person. From this restricted set of ideas, it is often the safest option that is chosen"
A high price to pay
A British toy retailer would have saved millions of pounds if it had adopted the behaviours of inquiring, encouraging and experimenting when expanding to the US. The company had incredible brand loyalty from parents in the UK, which it hoped to replicate across the Atlantic after opening 70 shops in one year. But the management opened them in the wrong part of town. The branding was also an issue, with the shop’s name sounding similar to a government social benefits agency for people on low incomes. These mistakes cost the business £70 million.
No-one suggested changing the strategy because it was political suicide, not psychologically safe, to question the decision. If they had taken an experimental approach, encouraging challenge and and inquiring in order to learn, the management could have opened one or two shops, quickly realised that the branding and location weren’t right and made changes before going ahead with a third outlet.
An execution environment
Strategy execution isn’t about following a brilliantly conceived plan. It’s the art of learning when you go wrong, correcting it and pushing on with undented enthusiasm. In the Executing Strategy for Results programme at London Business School, we use the Qi Index, a tool developed from research into the impact of cognitive diversity and psychological safety, to assess a company’s execution environment. From the results participants can identify the behavioural gap that needs to be plugged to create an environment in which new uncertain and complex situations can be confronted successfully.
The Qi Index allows us to assess the dominant behaviours in an organisation and the extent to which they support the ability to establish cognitively diverse teams for new, uncertain and complex situations. How does it work? Employees fill in a questionnaire, answering questions on how people in their company think about and interpret change. That provides insight into the level of diversity of thinking and psychological safety within the organisation.
A transformational case study
In 2011, NPI (not the company’s real name) was a €1.5 billion (£1.3 millon) turnover company, a very profitable market leader across several product categories with several years of profitable growth. By 2012, the company was seeing a flattening of sales growth and increasing competitive. Q1 2012 saw minus 15% sales growth, a severe build up of stock and unhappy distributors.
Most of the company was unaware there was a crisis. The sales team was busy on an incentive trip they had earned by loading stocks in 2011. There was no sharing of information. The organisation was very silo-driven, with each function sitting on a separate floor, in enclosed partitions and with frequent finger-pointing.
Using the Qi Index for assessing and improving organisational adaptability, managers described NPI as lacking in cognitive diversity and as a very psychologically unsafe place to challenge or express new ideas. The dominant behaviours were directive, controlling and conforming.
The leadership team set about executing a new strategy by focusing every one on the strategic choices that needed to be made, i.e. in what businesses could NPI succeed and how would they do it. Multidisciplinary teams addressed the questions:
1. What are the cumbersome processes that are tying up cost?
2. What could we do differently to grow sales, reduce stocks, manufacture just in time and get control on working capital?
The cross-functional multidisciplinary teams were empowered to make choices within the boundaries of the strategy to make decisions to increase customers’ willingness to pay and reduce the costs to produces. As a result, NPI saw the business turn around in 18 months, and thereafter achieve milestone after milestone. Five years later it was one of the best performing companies in the sector.
After the transformation, using the Qi index framework for assessing and improving organisational adaptability, managers described NPI as both highly diverse and high in psychological safety with dominant behaviours of curiosity, experimenting and encouraging.
"The Qi Index allows us to assess the dominant behaviours in an organisation and the extent to which they support the ability to establish cognitively diverse teams for new, uncertain and complex situations."
People at companies with high levels of cognitive diversity and psychological safety use the following terms when describing the dominant behaviours in their workplace: curiosity, experimentation, nurturing, enquiring, being forceful and encouraging. Organisations at the other end of the scale exhibit the following behaviours, according to their employees: directive, hierarchical, controlling, cautious, conforming and resistant.
If you want your organisation to be innovative, agile and adaptive, you have to integrate the first set of behaviours. It’s about challenging yourself and spotting any gaps. If you need or want to change how you behave, you can. People do it all the time; they go on diets, give up smoking or drink less alcohol.
Ideally, the executive management understand this and get on board with the idea. But even if they don’t, there’s nothing stopping you from creating a sub-culture with more cognitive diversity and psychological safety. Most people don’t work with board members, they work with colleagues in IT, marketing or finance. Culture is often cited as the reason why companies or teams have submissive behaviours, but that’s no excuse. We’re all responsible for how we act within our team, department or business.
David Lewis is director of the Senior Executive Programme and Executing Strategy for Results programme at London Business School. His new book 'The Qi Effect: How to unlock the power of interaction' is being published by Thinkers50 + Unbound. Find out more here.
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