Author: Karthik Suresh

As companies and as individuals we should be spending time thinking about strategy and the business environment around us but inevitably end up focusing on the here and now – the urgent rather than the important.

That means we tend to be inward looking – spending time thinking about management and control when we should be also looking outward, developing a strategy to follow.

So, what do we need to do in order to develop our strategic thinking skills?

In Developing Strategic Thought: Rediscovering the art of direction-giving, Bob Garratt writes that the Western approach to strategy formulation thought of it as a process of corporate planning.

What this means is that we should follow a series of analytical steps.

First, we decide what our goals and objective are.

Then we look at the internal and external factors around us – doing a SWOT analysis of strengths, weaknesses, opportunities and threats and a PESTLE review – political, economic, social, technological, legal and environmental conditions.

We take all that information and identify the strategic options open to us, analyze them and select the ones we intend to follow.

These selections are then used to decide what resources are allocated, how budgets are developed and the management controls that need to be in place. Once the strategy is set, it is followed.

This is all very linear and logical. And Bob argues that it misses the point.

All of this is very me me me.

Competitors are only seen as threats. Customers are simply revenue sources. Strategic alliances are not considered.

That said, the approach worked for a long time, but in a globalized business environment different models are now in play.

Much of Japan’s success in developing new markets rests with the approach its companies took to developing strategy.

It was a much less tidy approach.

Kenichi Ohmae, writing in The Mind of the Strategist: The art of Japanese business, describes an approach where views and opinions about competitors, customers and allies – their approach and likely strategies is blended with the company’s thoughts – and goals and plans emerge as a result.

It’s less like following a path and more like playing chess, except there are more than two players.

The choices we make depend on the moves other people make and our expectations of how they will move and how they will respond to the moves that we make.

The Eastern approach, therefore, is non-linear and continnual, and strategy emerges rather than being planned.

Both approaches have their place.

Understanding which approach we naturally tend towards, however, may help us when considering what do do in a broader context.

And, a wise strategist will probably combine both approaches to inform one’s own strategy.

It’s not money for starters.

Many organisations still have compensation systems built entirely around the concept of extrinsic rewards.

This is the idea that if you give a rat a reward for performing an action, like cheese if it runs through a maze, then it will be motivated to keep doing that for the reward.

Extrinsic rewards in the workplace are things like pay, bonuses based on performance and punishment, like the threat of being fired for being late to work.

The theory that most of us believe is that if you pay people more you get a more motivated workforce that performs better.

Even better, if you make rewards conditional – i.e, if they meet targets they get a certain reward – that will focus their minds and they’ll perform even better.

Except, it appears that it doesn’t.

A number of studies show that the link between pay and performance is weak, and this is the case around much of the world.

Once you get beyond a reasonable standard of pay, each increase has a temporary and diminishing impact on motivation.

It turns out that for a few weeks after we get a pay rise, we work harder and then the rush fades and we slip back to previous levels of performance.

The next time around, it takes an even bigger pay rise to get the same uptick in motivation.

What’s worse is that if we’re paid to do something we like, we tend to stop doing it unless we’re paid – so being paid for doing what we love could end up stopping us doing it at all unless we’re paid.

That makes sense – we’re paid because if we weren’t we’d be off doing something that we wanted to do, so perhaps we should only take jobs at things we wouldn’t do given the choice.

The worst kind of extrinsic reward, it turns out, is a conditional if-then reward.

Dan Pink, in his book Drive: the surprising truth about what motivates us, writes about experiments showing that when people were paid for completing tasks based on meeting certain performance scores, their overall performance actually dropped.

So, what does motivate us?

That’s where intrinsic motivation comes in.

Kenneth Thomas, in his book Intrinsic Motivation at Work, writes about four characteristics of work that increases intrinsic motivation.

We like working on things that have meaning and purpose. It feels good to know that what we’re doing is adding value rather than being parasitic.

We like being able to choose how we go about things – to use our judgement, select what should be done and in which order. That makes us feel like we own what we do.

We like being able to do things competently and know that we are performing well. This is more about having personal standards and knowing that what we do is good.

Finally, we like knowing that we are making progress – not running all the time to stay in the same place. It feels good to know that we are building something and moving in the right direction.

All this doesn’t say that money doesn’t matter. It does, but not as much as people think.

What’s perhaps more more important is fairness.

We really don’t like being paid less than someone else for the same work.

How do we decide where to spend our time – as individuals and organisations?

A quote often misattributed to Albert Einstein says “If you judge a fish by its ability to climb a tree, it will spend its whole life believing it is stupid”.

The quote is intended to be used in an educational context – to remind us that children may be innately better at some capabilities than others and so they should learn in the way that works best for them.

The counter to this is that the point of education is to learn and that comes through practice and sustained effort.

A fish has evolved to survive in a particular environment with every aspect of its function optimised for the things it needs to do to stay alive.

We humans, on the other hand, have a capability for learning.

At any given time, however, the capabilities we have are a function of the learning activities we have engaged in, either through interest or because it was what we had to do to survive.

It’s unlikely that any of us grew up dreaming of being good at constructing spreadsheets – but that’s where we might have ended up.

In organisations the collection of individual talents, efforts and skills results in the emergence of organisational capability – what the organisation can do as a whole.

Today, the capabilities of many organisations, especially service based ones, are inseparable from the individuals involved.

If someone leaves, a part of that capability goes with them. People are no longer interchangeable cogs in an organisational machine.

This creates a dilemma when it comes to answering the question in the title, both for individuals and organisations.

Should we focus on our core talents – doubling down and spending time just on those aspects of work that we are best at and compete on our strengths.

Or should we be exploring the areas we are not so good at yet, looking to develop our capabilities and expand our horizons?

It is, after all, a fundamental issue, as a traditional economic assessment would suggest that we should plan and allocate our scarce resources on the activities that will result in the highest net return.

But, who really makes a living allocating resources based on an economic assessment?

The answer for us, perhaps, is to have a go at the opportunities out there and see what works.

We may end up finding new and interesting trees to climb.

What makes it possible for people to work together and create value?

For starters, a relationship needs to be created between them.

The most obvious kind that we have around us is an employer-employee relationship in organisations.

In that context, the term Psychological Contract is what the people entering that relationship see as the contract between them, rather than the actual written contract they have signed.

But, you can see this everywhere where interaction happens between people.

For example, a psychological contract exists between us and our children, between us and a search engine like google, between us and a place that serves coffee like Starbucks.

So, how can we model the idea of a psychological contract and use it for good?

The picture above is an adaptation of a framework published by David Guest in 2004.

The basic concept is that any relationship involves promises and expectations on both sides.

For example, an employer promises to pay us and we promise to do work for them. We expect to get paid and they expect us to do work.

These promises and expectations are combined into a deal, which may be very different in the participants minds than what is down on paper.

Fairness in how that deal is implemented by both parties leads to trust.

Then, the level of trust leads to attitudes and behaviour.

If the deal is not implemented fairly, then trust is eroded, people become demotivated and start to produce less and act up more.

If the deal is implemented fairly, trust is increased, people are happier and more productive.

The same basic model can be applied widely.

For example, many years ago, we visited Vienna. We needed food and to use the facilities, so we went to a McDonalds, figuring that it would be the same everywhere and we’d get both there.

We ordered food and then went to use the facilities. It turned out we had to pay.

If we had used the facilities first, then our payment would have been taken off the bill.

As we had already eaten, that wasn’t an option. McDonalds in Vienna, however, refused to refund the charge.

We had a psychological deal with McDonalds – to be treated the same the world over – and this was unfair.

Unsurprisingly, we left with a negative impression of McDonalds and Vienna, with trust eroded and a memory of an experience that has lasted many years.

The psychological contract also underpins how we interact with websites.

When we go to search on google, we expect a search box and a thought-provoking doodle.

We also expect to find what we are searching for, with a balance of advertised and organic content.

But that may no longer be the case – Seth Godin wrote in 2013 about how companies like google change from wanting to create value for customers to creating value for shareholders.

We may live in a world where we sign contracts all the time – take all the software ones that we sign without reading such as when Apple brings out an upgrade on the iPhone.

At the end, however, the only contracts that matter are psychological.