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Managing from clarity: Identifying, aligning and leveraging strategic resources

by James L. Ritchie-Dunham and Hal T. Rabbino, John Wiley & Sons, 2001.

(Reviewed by Kevin Barham in April 2003)

(These book reviews offer a commentary on some aspects of the contribution the authors are making to management thinking. Neither Ashridge nor the reviewers necessarily agree with the authors’ views and the authors of the books are not responsible for any errors that may have crept in.

We aim to give enough information to enable readers to decide whether a book fits their particular concerns and, if so, to buy it. There is no substitute for reading the whole book and our reviews are no replacement for this. They can give only a broad indication of the value of a book and inevitably miss much of its richness and depth of argument. Nevertheless, we aim to open a window on to some of the benefits awaiting readers of management literature.)

What would happen in your organisation if you brought people together from the different functional or operational areas to describe how they worked, in particular how they used shared resources, and also how they expected the other areas operated? How consistent would the answers be? Consultants James Ritchie-Dunham and Hal Rabbino tried this exercise with the management team of a manufacturing company which they divided into its four different functional areas. Each area wrote down how the different resources within their area had behaved in the past and how they expected them to behave in the future. They did the same exercise for the other three groups. When the results were consolidated, the teams were shocked to find that they had been very wrong about the other groups, and even worse that the other groups had been completely wrong about their own area. This highlighted the lack of understanding about crucial resources the groups shared and why the groups acted the way they did.

Ritchie-Dunham and Rabbino use this exercise to raise awareness about interrelationships and ‘cause-effect linkages’ in organisations. If you’re not a systems thinker, you’re not a good business leader, say Ritchie-Dunham and Rabbino. Providing clarity is the essence of leadership. In an often turbulent world, leaders need tools to help them achieve this clarity. This book focuses leaders’ attention on three key abilities: understanding the organisations they lead, communicating that understanding to their internal and external stakeholders, and knowing where, how, and when to move the organisation in the desired direction. This is the leader’s job, whatever the size of the firm.

Until recently, say the authors, strategy taught leaders to divide the organisation into specialised disciplines with clear, optimised incentives. Leaders worried about efficiency and effectiveness within the boundaries of the organisation. Furthermore, at a higher level, within an industry strategic resources used to be tangible, relatively easy to purchase, and easy to build up. Now systems extend beyond the organisation into dynamic industries for which the boundaries are blurring. More than ever, key internal strategic resources are inextricably linked to each other and to the outside world. (Typical ‘strategic resources’ include customer loyalty, production experience or technological leads.) Successful leaders must develop management teams with capabilities that span across functions, organisations, and industries. This added dynamic complexity challenges assumed synergies and provokes unintended consequences, which continually threaten expected performance. Now, more than ever, management’s ability to understand resource dynamics, organisational design, and incentive structures, and their ability to align these with a clear corporate purpose, will determine the winners and losers of tomorrow.

The authors claim that most tools and approaches used in strategic management today were developed to work in stable environments. New tools are needed to deal with the impacts of today’s fast-paced, complex environment on organisations. The goal of their book, they say, is to present leaders with a new approach and appropriate tools to help them thrive in uncertain and dynamically complex environments. Systems thinking in particular provides a framework for thinking about organisations as groups of interrelated people, actions and resources. It is about seeing, understanding, and working with ‘the whole’. It focuses more on the relationships that link the parts of the whole than on the parts themselves. It facilitates an understanding of the unintended consequences that arise when seemingly rational solutions are put into practice within dynamically complex systems, creating unforeseen results that leaders find difficult to comprehend.

One of the major problems is that all too often leadership teams do not share a common understanding of the business drivers of organisation performance over time or of how the different areas of the organisation affect each other. The authors say that when they discuss strategy in many organisations, they find that managers tend to view the different areas within the organisation as operating like pistons in an engine. All parts move in perfect synchronicity, each performing predictably in a stable setting. When asked about the reality of business, however, most executives observe that the different ‘pistons’ seem to change size and pace ‘with each turn of the crank’. Within organisations, the knowledge of these separate elements usually resides within the heads of the area experts in different parts of the organisation. Would it not be helpful, ask the authors, if there were a single platform where all strategic discussions could take place?

This requires integrating disparate parts of the system into a single model or understanding of the system. ‘Causal mapping’ is a tool that the authors use to provide a language and a method for merging and clarifying the understandings of individual experts into a single model. ‘Causal maps’ show the cause-effect linkages between actions, integrating the decision goals and control information about actions with the corresponding actions.

To introduce systems thinking into an organisation, the authors propose what they call the ‘GRASP methodology’ which consists of five steps:

1. Building the GRASP map.
2. Quantifying key resource dynamics.
3. Integrating and validating the map.
4. Scenario planning and strategic foresight.
5. Learning interfaces.

The first step is to create a map of the organisation’s overall goals, resources, actions, structure, and people and then describe these cause-effect linkages quantitatively. This will capture tacit knowledge from the leadership team and identify key leverage points for moving the organisation in the desired direction. The cause-effect map integrates the following five areas:

• Goals focus on why the system exists.
• Resources focus on the resources needed to achieve the goals.
• Actions focus on how to leverage these resources most effectively.
• Structure focuses on how the resources and actions interrelate.
• People focuses on how to bring the system to life.

The essential questions asked by GRASP are: Who do we include in the strategy process? How do we incorporate their multiple perspectives? How do we identify the strongest points of leverage in the strategy? How do we get everyone to agree on them? Strategists have to answer these questions because successful implementation of any strategy depends on getting people in the organisation to both understand and identify with the strategy. (And, as Lynda Gratton points out in Living Strategy, strategists have to understand people.)

The GRASP map captures, integrates, and analyses the mental models of the people that best understand how the organisation works to achieve its goals. This ‘strategic road map’ looks at what the authors call the global, local, and integrative perspectives. The global perspective represents the ‘owners’ of the system - the people responsible for the overall or global behaviour of the system and for providing corporate resources. The local perspective represents the ‘participants’ in the system - the people responsible at the tactical or local level for using local and corporate resources to get things done. The integrative perspective represents the ‘management’ of the system - the people responsible for designing structures and ensuring that the local level activities achieve the global goals.

The problem is that well-planned actions within different parts of the organisation often conflict with each other and with the overarching stakeholder goal, which is usually some form of value maximisation. The authors claim that their GRASP methodology helps leaders understand how better to structure the interrelated policies that link different areas of the firm. It integrates all of the organisational parts into a single model, making the following issues explicit to managers and open for dialogue and subsequent action:

1. What is the system’s overarching purpose?
2. How does the system-wide structure want to behave globally?
3. How does the local structure want to behave? How do the system-wide and local rationales affect each other?

One of the important contributions of this book is to demonstrate that, though most leadership teams think that their global goal is clear to all, there is often lack of agreement within the team and between the team and their direct reports. Within leadership teams, all members have different mental models of the world, to the point where they often view the purpose of the same organisation differently. How can an organisation work towards the same goal, if they do not even share a common understanding of the global goal? Making explicit the global goal and sharing that understanding go a long way towards fixing this problem.

The authors cite another example of a meeting that they facilitated. Here, a member of the executive management team of a large utility entering a highly competitive, deregulated market started the strategic debate by stating that obviously the team’s goal was to maximise earnings before interest and taxes. As senior management had been reinforcing this concept recently many other members agreed, until someone said that what they were really maximising was shareholder value. Another asked if that was actually total returns to shareholders. Someone else then suggested that they also had to keep internal customers happy. And so on. This simple exercise showed that there were multiple points of view and that the solution was not obvious. On the other hand, the group quickly came to a consensus that they existed to create value for stakeholders and which groups should be included.

Looking at the local perspective makes explicit how individuals within the local groups view the resources for which they are responsible, and their expectations for the behaviour of those resources over time. Typical insights from this perspective come from making explicit for the first time our expectations for certain resources and how they are interrelated, checking the consistency of these expectations, and from seeing how our expectations about other groups differ within the organisation. Groups often hear from their colleagues for the first time how other areas of the business actually work, how they are managed, and why (as in the example at the start of this review).

Comparing the global and the local perspectives assesses the ‘current state’ of the system. It highlights and makes explicit the potential gaps between the owners’ desires and what the system is structured to deliver. One can compare the vision that the two perspectives provide. The global and local perspectives often provide ‘shockingly different’ views of the same system. On the one hand, the global perspective indicates that stakeholder goals primarily exist within ‘reinforcing feedback loops’ (i.e., the business growth cycle), where the explicit purpose of the organisation is to create continuously increasing value for the system’s owners. On the other hand, the local perspective indicates that management of most of the internal resources primarily exists within ‘balancing feedback loops’, with the explicit purpose of utilising these resources as efficiently as possible. Thus there is a paradox in the system whereby the global goal focuses on growth and the local goals focus on stability. This global-local paradox often creates misalignment between the strategic message that senior management proclaims and the ability of the organisation to deliver.

The integrative perspective provides various ‘tools, devised by the authors to assist leaders to integrate the local potential of the individuals in the organisation to achieve the global goals. These, for example, show the relative influence of each resource on the movement of other resources in the system, as well as the relative exposure to the other resources captured in the GRASP map. They highlight the interconnectivity of strategic resources and help to prioritise the level of management that should design policies and monitor the strategic resources. One tool describes how each of the major players in the organisation views its relationship with the other players and highlights potential conflicts arising from different perspectives, as well as explicitly prioritising the relationships on which each group will focus.

The last steps in the process involve quantifying key resource dynamics, gaining an understanding of how resources behave over time under different policies and strategic challenges. Integrating and validating the map shows how actions that maximise local resources can have strong negative impacts on resources in other areas. Scenario planning looks at the key assumptions that might affect the chosen strategy and structure and involves ‘severe testing’ of the shared understanding implicit in the map. Moving to ‘learning interfaces’ concerns communicating the model, continuing modelling to capture the new policies or embed the existing work into a continuing strategic planning process. Learning interfaces are like flight simulators in that they create an environment where the effects of actions in a system can proceed quickly, the results studied and hypotheses concerning how the system works can be tested repeatedly. There are typically, in terms of increasing levels of complexity, three interfaces: ‘dashboards’, ‘learning laboratories’ and ‘learning environments’. The ultimate aim of the learning interfaces is to communicate the strategy so that the people in the organisation understand it and feel they own it.

It has to be said, Managing from Clarity makes dry reading in comparison with Lynda Gratton’s Living Strategy. There is quite a lot of ‘systems speak’ to navigate and, although the book is ultimately about people and how they interact in organisations, the book sometimes seems to de-emphasise the role of people as human beings. However, it is probably worth scanning to pull out the essentials of the methodology. The notion of the ‘learning interfaces’ is certainly worth exploring. The authors use two case studies, one from a Mexican public sector organisation (low available resources) and one from a European manufacturing firm (high available resources) to show how the GRASP approach works in practice. To judge by the testimonials on the jacket of the book, the process seems to have helped a wide range of organisations. ‘This method really works,’ says one top manager. ‘I highly recommend this book to anyone seeking a practical tool to help analyse and solve complex problems in a participatory and systemic manner.’ You should not believe everything you read on a book’s cover, it is true, but here is a sample of what some other managers and consultants say about it:

• ‘This book turns the art of system dynamics interventions into science for the first time. For those of us who live the successes and the frustrations of organisations every day, this is a gift.’
• ‘The tools and process integrated our best thinking at the top and gave us a structured way to prioritise and address them as a team more quickly and effectively...it is very powerful.’
• ‘The GRASP methodology has the potential to become the next major innovation in business strategy.’
• ‘Read it; it’s a snapshot of how strategy will be managed in the 21st century.’

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