This Slideshare presentation is a partial preview of the full business document. To view and download the full document, please go here: http://flevy.com/browse/business-document/creative-thinking-in-strategy-development-205 Strategy Development is creative process. However, creativity is not a natural process and, therefore, it isn't easy for an organization to incorporate creative thinking into its Strategy Development process. This document details various ways to foster creative thinking within Strategy Development.

1. Business Framework
Creative Thinking in
Strategy Development
Strategy Development is creative process. However,
creativity is not a natural process and, therefore, it isn’t
easy for an organization to incorporate creative thinking
into its Strategy Development process. This document
details various ways to foster creative thinking within
Strategy Development.
Problem
Idea A Idea B
Weak
Solution
Idea C
Idea Idea
Idea
Idea Idea
Idea
Breakthrough
Solution
Idea
Idea
Reproductive thinking
Productive thinking
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2. 3
Contents
• Introduction
- Strategy Development
- Creativity
• Creative Thinking
- Obstructions to Creative Thinking
- Opportunities for Creative Thinking
• Opportunity 1: Conditions
• Opportunity 2: Pushing Conventional Thinking
• Opportunity 3: Collaborative Thinking
• Summary

3. 5
Companies are often disappointed with the outcome of Strategy
Development efforts
There are two close manifestations of the same strategy development challenge: designing
and getting buy-in into new opportunities.
There is a lot of dancing, waving of feathers, and beating of drums. No one is exactly sure why
we do it, but there is an almost mystical hope that something good will come out of it
– VP of Strategic Planning, Leading U.S. Utility Company
Lack of innovative/creative solutions is a frequent criticism—more subtle is
the lack of acceptation of innovative ideas.

4. 7
Creative thinking is not a natural process
EE KK 44 77
Source: William Poundstone, ‘How would you move Mount Fuji’, Little Brown Ed.
Each card has a letter on one side and a number on the other.
How would you verify the following rule: “if a card as a vowel on one side,
then it has an even number on the other side”.
You are allowed to turn over a maximum of two cards in order to determine
whether the rule is correct as stated.

5. 9
Contents
• Introduction
- Strategy Development
- Creativity
• Creative Thinking
- Obstructions to Creative Thinking
- Opportunities for Creative Thinking
• Opportunity 1: Conditions
• Opportunity 2: Pushing Conventional Thinking
• Opportunity 3: Collaborative Thinking
• Summary

6. 11
There is no silver bullet for creativity, but at least three areas of
opportunities
Ensuring the right
‘conditions’ are in place
Pushing the limits of
‘conventional’ thinking
Leveraging the power
of ‘collaborative thinking’
1 2 3
Enabling Creative Thinking

7. 13
To enable creative thinking, first, we must ensure the right “conditions” are
in place
Ensuring the right
‘conditions’ are in place
Pushing the limits of
‘conventional’ thinking
Leveraging the power
of ‘collaborative thinking’
Enabling Creative Thinking

8. 15
A diverse team bringing complementary vantage points will deliver better
results
Key Roles within Innovation SWAT Team
BUILDING
ORGANIZING
LEARNING
Activity
Building internal and external awareness through
compelling narratives that communicate human value
or reinforce specific cultural trait.
Storyteller
Building on metaphor of healthcare profession to give
customer care in manner that goes beyond mere
customer service.
Caregiver
Creating a stage on which innovation team can do their
best work.
Set Designer
Designing compelling experiences that go beyond
mere functionality to connect to a deeper level with
customer latent or expressed needs.
Experience
Architect
Gathering cast and crew to spark creative talent.Director
Bringing eclectic groups together.Collaborator
Overcoming and outsmarting roadblocks for innovation.Hurdler
Exploring other industries and cultures searching for
cues.
Cross-pollinator
Prototyping new ideas continuously, learning by a
process of trial and error.
Experimenter
Bring new learning and insights by observing human
behavior and developing a deep understanding of how
people interact physically and emotionally with
products, services, and spaces.
Anthropologist
RoleProfile
Source:Thomas Kelley et al., ‘The Ten Faces of Innovation : IDEO's Strategies for Defeating the Devil's Advocate and Driving Creativity Throughout Your
Organization’, Reed Business Information
• More is better.
• Diversity/mix
quality.
• Intimacy with
issue at stake.
Each specific situation will require a different mix of skills.

9. 17
Sources/Analysis Mix
Diversifying the mix of sources and analyses increases the odds for a
creative outcome
Casting
new light
Area of low
creative
opportunity
Generating
brand new
insights
Expanding
horizons
Existing New
Existing
New
ANALYSIS
SOURCES OF
INFORMATION
Understand where client is at prior to
designing analysis plan (e.g., Focus
Interviews identifying situation and
disconnects):
• What has been proven/how
• What is assumed
• What is unknown
Openly question assumed and unknown
areas:
• Potential implications on current strategy
if discovered/proven wrong
Diversify sources of information:
• Alternate secondary sources
• Primary research (even qualitative, at
least at the beginning)
• Outside of the industry
• Internal perspectives
Target a 25-25-25-25 mix.

10. 19
Contents
• Introduction
- Strategy Development
- Creativity
• Creative Thinking
- Obstructions to Creative Thinking
- Opportunities for Creative Thinking
• Opportunity 1: Conditions
• Opportunity 2: Pushing Conventional Thinking
• Opportunity 3: Collaborative Thinking
• Summary

11. 21
Behavioral economics flaws, such as overconfidence, sunk cost fallacy,
and the herding instinct …
One would rather spend an additional
$10M for an uneconomic $110M
project instead of writing off $100M
(loss aversion + anchoring).
Participants to an experiment will
overestimate value of object given to
them by 100% compared to what
other participants would be ready to
pay.
Participants to an experiment
receiving investment portfolios in low-
return bonds will maintain initial
allocation instead of rebalancing
portfolio.
Gamblers who lose their winning
typically feel they have not lost
anything although they would have
been richer had they stopped when
they were ahead.
When asked for a range estimate
providing 90% confidence, one tends
to respond with a narrow and wrong
range instead of playing safe.
Illustration
Not challenging existing assets
according to their true value.
Overestimating the value of owned
property.
Endowment effect
Keeping on investing on overrun
projects event though original case
does not make sense any longer.
Being more concerned about the risk
of losing than the prospect of gain.
Categorizing money differently
depending on where it comes from,
where it is kept, and how it is spent.
Preferring precisely wrong rather than
vaguely right estimates.
Assessing capabilities above average
in general.
Being over-optimistic in the face
of uncertainties.
Representative symptoms
Not challenging the relevance of past
decisions made.
Sunk cost effects
Rationalizing status quo.
Discounting upside opportunities of
change.
Gain discounting
Not challenging past or planned
resource allocation decisions based
on their nature.
Mental accounting
Underestimating costs or benefits of
status quo.
Overconfidence
Impact on creativity
Behavioral
economics flaws
Source: Charles Roxburgh, Hidden Flaws in Strategy, McKinsey Quarterly 2002 Number 2

12. 23
Effective analysis will be constructed in order to overcome them
Analysis Guiding Principles
• Make seeking the new and the unusual the goal of the strategy development effort –
systematically encourage drawing insights outside of the core industry.
• View all assets and businesses as up for sale - keep things in perspective.
• Focus strategy development on providing a detailed refutation of existing strategy instead of
its validation.
• Subject status quo options to a risk analysis as rigorous as the one change options are
subject to.
• Enforce the simple rule that every dollar is worth a dollar whatever category it belongs to –
use cash flows as the universal benchmark.
• Apply the full rigor of investment analysis to incremental investments looking only at
incremental prospective costs and revenues.
• Watch strategic experiments closely and subject them to rigorous gate funding.
• Test opportunities against a wide range of scenarios (2 or 4 in practice to avoid
systematically choosing the middle-ground option) – Add 20-25% downside to most
pessimistic scenarios.
Source: Charles Roxburgh, Hidden Flaws in Strategy, McKinsey Quarterly 2002 Number 2

13. 25
To drive shifts in mindset, we can use uncertainties to plan out various
scenarios …
Developing Scenarios
Each axes of uncertainties are expressed in terms of
its most extreme outcome.
Scenarios are developed, combining various possible
extreme outcomesa.
Strong GreenWeak GreenEnvironmental
InterventionistFree market
Political
influence
UnregulatedRegulatedOpenness
Moderate-highSlow
Global
economic
growth
UnstableStable
Producing
country stability
Limited (<100%
reserves
replacement)
Good (>125%
reserves
replacement)
US opportunity
potential
B (Unfavorable)A (Favorable)
Potential Outcomes
B
B
A
A
B
B
Global
Instabili
ty/Local
Protect.
A
B
B
A
A
A
Base
Case
AB
Environ-
mental
BA
Political
influence
BBOpenness
AB
Global Eco.
growth
BA
Producing
country
stability
AB
US
opportunity
potential
US
Growth
Gas
Blood
Bath
Scenarios
a Usually starts by producing all possible scenarios and then select the 2-5 presenting the most: consistency (plausible), relevance (realistic), challenge
(posing a challenge), distinctiveness (presenting different enough configurations).

14. 27
Uncertainties can also be leveraged by evaluating the 4 levels of certainty
and …
Representative
example of
strategic
decision
Description
Major discontinuity.
Markets just beginning
to form.
Extended timeframe
required to evaluate
potential strategy.
Customer demand for
completely new
product or service.
Relative preference for
new competitive
services.
Unstable macro-
economic conditions
impacting underlying
demand.
Unpredictable move of
competitor (e.g.,
entering or not entering
into market).
Regulatory change
(e.g., happening or
not).
Establishment of a new
industry standard.
Retailer store footprint
expansion.
Marketing decision on
well established brands
in stable markets.
Acquisition of
competitor in stable,
mature market
Limitless range of possible
outcomes.
Wide enough range of
possible outcomes.
MECE set of possible
outcomes, one of which
will occur
Outcome predictable
enough to identify a clear
confident solution
Level 4
True ambiguity
Level 3
Range of futures
Level 2
Alternative futures
Level 1
Clear enough future
Level of uncertainty reducing over time
Source: Courtney, H. et al. (1997), Strategy Under Uncertainty
1
2
3
?
Majority of strategic decision making options
falling in this range
Categorizing Uncertainty

15. 29
Pushing Options Depending on Each Situation (2 of 2)
Level 2Level 2-4Level 2-4Level 2-4Level 1Applicability
Contract
cancellation clause
(e.g., airplane
purchase)
Short term sourcing
contracts
Outsourcing
Launching small
scale pilots (e.g.,
eCommerce retail
channel)
Acquiring a small
player and making
an alliance to learn
about the market
Delaying launch of
patented product
Supporting
alternative
standards when cost
permits (e.g.,
software versioning)
Implementing
training/HR
programs enabling
better handling of
alternate outcomes
Deploying
technology to
reinforce ability to
adapt
Providing unique
incentives to early
adopters to help
establish a standard
Anticipating
investment in
capacity to preempt
competitors from
doing it
Taking control of
part of a value chain
to preempt
competitors for
entering a market
Introducing radical
innovation
Replicating model in
new geographic
markets
Examples
Action contributing to
reduce potential
downside impact of
market shift
Highly leveraged
investment (compared
to full-scale
commitment), providing
the flexibility (not
obligation) to conduct
future full scale
investment later while
gaining a competitive
advantage
Making the organization
more flexible and
adaptive to potential
market shifts
Action contributing to
influencing the outcome
of uncertain futures
towards a favorable
position
Action contributing to
changing the nature of
the game and disrupt
the order in place
Description
Insurance options
Real options and
hedging bets
Building flexibility
Influencing future
outcomes
Introducing
discontinuity
Source: Courtney, H. et al. (1997), Strategy Under Uncertainty

16. 31
Here is an example using qualitative assessment to evaluate a level 3
uncertainty scenario
Assessing Options – Level 3 Uncertainty Example
Launching full production or
taking 5 year license on block
of land in the face of uncertain
reserves and oil prices
$100MPurchase option costa
($100M)Full commitment cost
5%Risk free interest rate (risk-less
security for same duration)
$15M/year to keep reserve
active
Dividends (costs during duration
of option to maintain it)
5 years (duration of license)Option duration (period of
availability of investment)
30% standard deviation (based
on geology tests)
Uncertainty (standard deviation
of per period growth rate of cash
flow from investment
opportunity)
$600M (development required to
put field into production)
Exercise price (PV of all sunk
costs that will be necessary to
capture future cash flows)
$500M (expected barrel
production and margin per
barrel)
Stock price (PV of future cash
flow on which option is
purchased)
ExampleEvaluation criteria Qualitative assessment of option validity
HighLow
Risk-free
discount rate
LowHigh
Direct and
opportunity
costs to
maintain
option
(compared to
full scale
commitment)
LongShort
Duration of
option without
threat of
competitive
preemption
HighLow
Level of
uncertainty of
expected cash
flows from full
commitment
investment
Option
Full
commitment
a. Applying Black and Sholes model for evaluating options.
Source: Adapted from Courtney, H. et al. (1997), Strategy Under Uncertainty

17. 33
Collaborative thinking is a tremendous enabler to a creative output
Ensuring the right
‘conditions’ are in place
Pushing the limits of
‘conventional’ thinking
Leveraging the power
of collaborative thinking
Enabling Creative Thinking

18. 35
Various techniques can be applied and combined to achieve different goals
Use client (or
segments),
competitor, and
leading class
companies as
alternate vantage
points.
Provide sufficient
details on how
solution applied in
comparative
situation (idea
generation).
Impose quota on
lessons learned.
Reformulation.
Idea generation.
Metaphors
Vantage points
Expand thinking
outside of actual
context to identify
lessons applicable to
current situation
Parallel
PMI (Plus-Minus-
Interesting)
Design challengeTake-a-panel,
share-a-panel
Fishbone diagram
Lotus Blossom
Force field analysis
Example
Impose quota
(especially on
pluses and
interesting).
Can be
systematically
employed at each
step.
Contrast scenarios.
Build scenarios
around key
‘debated’
alternatives (one at
a time).
Do not strive for
realism.
Provide relatively
detailed picture of
the future state.
Incorporate bold
quantified targets in
future state (e.g.,
doubled sales,
profit improved by
x%).
Ensure broad
coverage by asking
questions covering
a broad spectrum
of topics (e.g.,
people, process,
organizational).
Impose ambitious quota
(e.g., 100 ideas).
Put time constraints.
Comments
Idea refinement.Idea refinement.Problem formulation.
Idea generation.
Reformulation
Idea generation
Application
Build from unpractical
ideas to generate new
opportunities.
Explore alternative
approaches for a
same problem under
extreme constraints.
Work from an ideal
future state to
retroactively identify
elements of a solution.
Connect ideas to foster
explorative thinking.
Objective
ExtrapolationChallengeProjectionMapping

19. 37
Several guiding principles need to be considered when using workshops in
Strategy Development
Make the executive team the sponsor team of the workshop—nobody else
Assess/challenge executive team appetite for inclusion
Shift emphasis from ‘acceleration’ to ‘creativity and mobilization’
Allow sufficient time for executive team to set directions in the course of the session
Plan on a 3-day session ideally
Send fact-book sent prior to session – 20-to-30-page max.
Beware of invitee list – maturity-level of participants
Beware of exercises that may not work well with senior-executives (e.g., reading exercises,
team-building exercises)
Engage appropriate participants (good strategists and facilitators, rather than subject matter
experts)
Engagement team engaged to support event design and execution
Allow for sufficient time/iteration between workshop output and actual conclusion of Strategy
Development process (2 weeks minimum)

20. 39
In summary …
Strategy development is a creative process.
Bringing creativity to the strategy development process is fundamentally about driving
productive, not reproductive, thinking.
Groupthink, reliance on what our clients know, discounting uncertainties, and relying too much on
what has worked in the past significantly impair the creative process.
There is no silver bullet to creativity but at least three areas for opportunities.
• CONDITIONS: From a set-up standpoint, the timing, choice of the team, quality of the
problem formulation, adequacy of the sources employed, and design of the engagement itself
can improve the creative outcome of the process
• PUSHING CONVENTIONAL THINKING: Analytical rigor is essential to overcome behavioral
economics flaws and extract the most out of uncertainties (whether to trigger mindset shift
through scenario planning or to invent new solutions)
• COLLABORATIVE THINKING: Creative techniques can be employed to foster collaborative
creative thinking – the workshop is an important tool to be considered, but not the only
vehicle to drive collaborative thinking
1
2
3