Editor’s Note: The Goff Strategic Leadership Center believes that successful strategic leaders demonstrate skills across six specific dimensions (what we refer to as the Six Principles of Strategic Leadership). This model of leadership indicates that competence in these six areas contributes to high levels of individual, team, and organizational success. Research conducted by faculty at the University of Utah provides insights into each of these principles and describes specific strategies for how leaders can apply these principles. Read more below.
Strategic leaders are relentlessly focused on creating value. Since long-term value is created through the cumulative effect of decisions over time, it’s critical for leaders to focus their energy on the most important decisions – the decisions that will have a strategic impact on their organization’s long-term growth. Leaders who focus their energy on less impactful decisions risk overlooking the chance to drive meaningful growth, or missing opportunities to remove barriers to growth.
So, what makes a decision a strategic one? Dr. Todd Zenger, academic director of the Goff Strategic Leadership Center, has conducted extensive research on strategy and decision-making, including a recent paper on precisely this topic. In his research with colleagues Michael Leiblein and Jeffrey Reuer, Dr. Zenger identifies three key elements of strategic decisions. These elements help managers allocate their time toward decisions that will maximize the value they create for their organizations.
First, a decision is strategic if it influences a wide range of other simultaneous decisions that another individual, or the organization as a whole, will make. For example, a company’s decision to either be a low-cost operation or a high-quality differentiated operation is a strategic one, because that choice will influence hiring, marketing, production, customer service, and all other facets of the company’s operations.
Second, a decision is strategic if it interacts with a wide range of choices that other decision-makers have to make. When a leader makes a choice that impacts suppliers, competitors, or other collaborators, they’re making a strategic decision. And, because the primary decision-maker only has indirect influence over these other decision-makers, it’s even more crucial to make an informed decision.
And third, a decision is strategic if it commits the decision-maker to a specific set of future choices. Consider a company making binding commitments, signing contractual agreements, or making irreversible investments – these are all strategic decisions because the implications will last. The partnership between Barnes & Noble and Starbucks, for example, locked both companies into a long-term commitment with implications for branding, finances, and space.
As leaders consider where to spend their time they should put more energy toward these strategic decisions that provide the most leverage. To start identifying strategic choices, leaders could consider how their decisions will impact other people’s decisions as well as their future decisions, by playing out some of the possible outcomes of each decision. But since there are a myriad of combinations and possibilities that accompany any given choice, leaders of course need to determine how much energy to dedicate to playing out the possible outcomes of their decisions. To avoid getting stuck imagining various scenarios without actually taking action, leaders could start by identifying their core assumptions surrounding the decision, and then creating a low-risk way to test those assumptions. If this test seems to indicate that the assumptions are correct, leaders could proceed with using them as the guiding parameters for their decision.
Ultimately, by using the three elements outlined above to identify strategic decisions, and by testing their guiding assumptions through lower-risk activities, strategic leaders will use their time most effectively and focus their energy on the decisions that matter most.
About the Faculty
Todd Zenger is the N. Eldon Tanner Chair in Strategy and Strategic Leadership at the David Eccles School of Business at the University of Utah. Michael Leiblein is an Associate Professor in Management & Human Resources at the Fisher College of Business at the Ohio State University. Jeffrey Reuer is the Guggenheim Endowed Chair and Professor of Strategy and Entrepreneurship at the Leeds School of Business at the University of Colorado.