The fifth development stage of a connective strategic management aims to make organizations and countries more digital, sustainable and resilient. In this stage, pioneering companies are realigning their strategic processes. The focus here is on GenAI-based strategic learning loops as a connecting process pattern. This innovative approach has the potential to improve the management of complexity. Here too, generative artificial intelligence (GenAI) is a driver and game changer. With the help of AI, strategy teams can further develop their individual leadership strengths and take advantage of the opportunities offered by new technologies. At the same time, it is important to reduce the risks associated with these technologies. A suitable containment approach for this currently only exists in its infancy. An alternative to the powerful digital giants is currently emerging in Germany.
In the first part of this blog post, I explain why the concept of strategic learning loops is becoming increasingly important for corporate success.
Disruption with GenAI made in Germany
If you are looking for successful strategy processes in Germany, the Schwarz Group, which has made the discount king Dieter Schwarz the richest citizen in the country, is an interesting lesson. First of all, the development of the discounters Lidl and Kaufland is a successful example of demand-side disruption.1 Building on this, the Schwarz Group began producing its own food and setting up a recycling subsidiary.
With the Schwarz Digits division, which focuses on digital sovereignty, the Group’s disruption strategy is taking on a new dimension. The digital division’s portfolio currently consists of the following strategic business units and investments:
- Stackit offers a sovereign cloud solution with technical infrastructure in Germany and Austria
- The start-up Aleph Alpha is working on independent and transparent artificial intelligence
- XM Cyber uncovers security vulnerabilities with the power of attack simulation
- and finally, as a pioneer in data protection and encryption, Wire provides secure communication.
The highest growth rates worldwide are forecasted for this bundle of strategic business areas.2 Sovereign, trustworthy AI made in Germany3 could prove to be a complement to the offerings of the digital giants, with whom cooperation is of course also possible.
Walter Wolf, CEO of Schwarz Digits, emphasizes the importance of specific knowledge for the company’s success, which must be protected. In October 2024, the company also deepened its partnership with SAP so that Stackit customers can take advantage of the comprehensive RISE with SAP offering.4
The universities, research institutions and start-ups supported by the Schwarz Group form the core of an innovation ecosystem5 in the region around Heilbronn and Heidelberg, which is highly attractive to partners from all over Europe.
With the Data Hub Europe, Schwarz Digits is now working with Deutsche Bahn to create a data platform for training specific, proprietary and confidential AI models.6 This example shows that successful strategy processes for digital innovations based on entrepreneurs are also possible in Germany.
In our book „The Internet of Things and Artificial Intelligence as a Game Changer“, published in 2020, we described the importance of linking centralized and decentralized processes with strategic learning loops.7 The central strategy processes take place at the level of the entire company. Agile strategy teams work at the decentralized level and are networked with each other as well as with the central level and its IT architecture.
In the following sections, I would like to explain how companies can better exploit the potential of strategy processes today. I will start with some basics.
Various strategy terms, behavioral patterns and strategy schools
The term strategy has different meanings. In his famous 5Ps, Henry Mintzberg mentions the plan, the ploy, the pattern, the position and the perspective.8 From today’s perspective, the different patterns of behavior that occur in certain types of companies and in specific situations are particularly relevant. For example, the visionary pattern of innovative companies, the classic pattern of established large companies, the agile pattern of start-ups and the scaling pattern of companies with a digital platform business model differ significantly from one another. Added to this is the cost-cutting pattern of companies undergoing restructuring.
Mintzberg and his co-authors also published a description of ten schools of strategy that have emerged since the 1960s in 1999.9 For example, the positioning school propagated by consulting firms and Harvard professor Michael Porter views strategy development and implementation primarily as an analytical process. When this school came to Germany in the 1970s and 80s, it met with a relatively high level of acceptance, particularly in established large companies.
The many world market leaders that are little known to the general public, for whom Hermann Simon coined the term „hidden champions“ in 1990,10 tend to practice a combination of the entrepreneurial school, the learning and cultural school. From the perspective of the learning school, strategies and, above all, innovations arise from the complex interaction of a large number of players. Such an emerging process is also an important success factor in many digital companies.11
The first three of the ten schools are prescriptive in nature, i.e. they attempt to describe how strategy processes should work. The more recent seven schools, which include the learning school, are descriptive. Their aim is to describe how strategy processes actually take place.
My experience from strategy consulting for many DAX companies and even more „hidden champions“ is that strategy processes are much more complex in practice and usually combine different schools of strategy. This applies in particular to the combination of different behavioral patterns, e.g. in the context of mergers and acquisitions.
An important, but for a long time not well understood concept for managing the complexity of strategy processes are strategic learning loops and their emergence from various subject areas.
Development of strategic learning loops
The concept of strategic learning loops has emerged from two subject areas that have developed relatively separately from each other. The first area is strategy processes – surprisingly an area that has been neglected by management science and practice after a great deal of early work and in which there has been little progress. I have been concerned about these deficits for a long time.
After my dissertation on strategic technology management in 198512 , I had hoped that the successful implementation of technical innovations in the USA with the help of corporate venture management would also meet with broad approval in Germany. Unfortunately, the timing was not right when I published my book on this topic in 1988.13 It would take more than a decade before the investment of established companies in start-ups gradually gained in importance in Germany as well. Based on my experience from a large number of consulting projects with deficits in strategy processes, I began to look for the causes of these difficulties. In doing so, I was able to build on what I had learned in the meantime about innovation culture and strategic change.
In my post-doctoral thesis, published in 1991, I critically examined traditional strategic management „field commander style“. The alternative concept is evolutionary leadership of learning organizations.14 Successful digital start-ups have made this paradigm shift in strategic management from mechanistic to overcoming complexity and are now the most valuable companies in the world.15
Since the 1980s, problems in the implementation of strategies have become more of a focus of interest and various approaches to performance management have emerged. Semiconductor pioneer Intel developed the Objectives and Key Results (OKR) method, which was primarily used by start-ups such as Google.16 In Germany, the balanced scorecard method, which emerged from a best practice study by Robert Kaplan and David Norton and follows a more traditional top-down concept, became much better known.17
The second topic is learning loops, which have their roots in action research developed by social psychologist Kurt Lewin back in the 1940s.18 Such an approach in the form of a spiral of repetitive loops has become an important method of organizational development that favours a bottom-up approach. For a long time, however, the thinking patterns of strategists and organizational developers had little in common. This only changed with the increasing importance of strategic change.19
The great practical relevance of learning loops today lies in the fact that they are part of the basic procedural concept of agile methods such as design thinking, scrum and lean start-up.20 These agile methods have made a decisive contribution to the success of digital companies, but still meet with resistance in many established companies. It is important to understand that the scrum method was developed on the basis of the theory of complex adaptive systems. In agile organizations, the main task of managers is to create a suitable framework for more self-organization.
Combining these two topics with generative artificial intelligence as a driver now enables a fundamental realignment of strategy processes.21
Realignment of strategy processes
Pioneering companies with whom we work pursue the following three approaches when realigning their strategy processes:
- A breakdown of the processes into the phases of thinking, acting and communicative dissemination and change with strategic learning loops as a connecting process pattern
- improving the relevant strategic skills of project teams based on individual leadership strengths and
- exploiting the opportunities of company-specific generative artificial intelligence (GenAI) and containing its risks.
In the following, I will go into more detail about our experiences with the first two approaches. The last point will be the subject of the second part of this blog post.
Process phases and strategic learning loops
One shortcoming of traditional top-down strategy processes is the separation between the phases
- creative strategic thinking that leads to the development or emergence of strategies and
- practical strategic action to implement the strategies in the form of programs and projects that run alongside day-to-day operations.
At the interface between strategy generation and implementation, established companies have corporate development departments that are often supported by ambitious external consultants for challenging and unpleasant tasks. Empirical research on the success rate of this approach is limited. However, a growing number of negative practical examples show that this traditional understanding of the process needs to be revised.22
In addition to these two phases, there is a third phase in which the shortcomings in bureaucratic organizations are particularly pronounced. This phase is about the communicative dissemination of strategies and a change designed as a learning process.
In recent decades, start-ups and successful digital companies have provided important impetus for this. For a long time now, software development has no longer been carried out using the waterfall method but with an agile mindset.23 This is based on the aforementioned paradigm shift in strategic management from mechanistic to overcoming complexity. Strategic learning loops, which are increasingly GenAI-based, play an important role.
The basic principle of a strategic learning loop known from the lean start-up method is: formulate assumptions (hypotheses), design something (e.g. a further developed business model), test the assumptions, learn from the test results and, if necessary, pivot. In the digital world, these learning loops are the basics of successful management. However, encrusted silo organizations in business, administration and politics that are resistant to advice resist them with great emotional intensity.
The success of strategic learning loops lies in the fact that they combine the three phases of strategy processes described above. This creates a complexity-overcoming process pattern that is clearly superior to traditional approaches. The disruptive effect of this process pattern is a difficult barrier to overcome for established companies with „old-school“ managers.
Confirmation in training and further education
An interesting experience from university teaching in dual programs, in which people who work in different companies have the opportunity to share their experiences in a „fear-free space“, is the following: While one group of students experiences the unifying process pattern of strategic learning loops as an everyday working reality, for the other group this pattern is a foreign world in which attempts to change from within are perceived as futile or dangerous.
When the second group is asked whether external intervention by consultants, trainers or coaches would be promising, opinions are divided. One sub-group believes that this also has an alibi function at best. The other group believes that there is a certain openness to professional change agents because the signs of crisis are increasing and change is therefore necessary.
These personal experiences over a relatively long period of time confirm the thesis that Europe is divided into two management worlds. This gives rise to suggestions for answering the question of how strategy teams can improve their relevant skills.
Improvement of strategic capabilities
As in team sports, successful strategy teams are made up of players with different strengths. Creative strategic thinkers, analytically gifted planners, energetic implementers, strong communicators and empathetic change agents ideally act as strategy process champions in a team. However, many companies do not take full advantage of the opportunities to improve team performance in strategy processes, even though there are proven methods for doing so.
A well-known approach is the StrengthFinder concept, which divides personal leadership strengths into the categories of strategic thinking, implementation, influence on others and relationship development.24 The figure shows the mapping of 34 identified strengths to these categories based on Don Clifton’s research.
This concept is suitable for the assessment of managers, the composition of high-performance teams and the targeted further development of individual skills.
The use of generative artificial intelligence is now opening up new opportunities. This once again demonstrates the relevance of the term „hype cycle“ coined by Gartner consultant Jackie Fenn in 1995.25 The media hype cycle for new technologies often takes place in the following stages
- basic research
- technological trigger
- exaggerated expectations up to a peak
- disillusionment into the valley of disappointment
- path to a realistic assessment and finally
- a plateau in productivity.
I will discuss this and new developments in the application of generative AI in strategy processes in the second part of this blog post.
The example of Porsche shows how this can work in practice.
Changing rules of the game through AI in Porsche’s liquid organization
Sajjad Khan, Porsche’s IT Director, believes that AI is the next big wave that will fundamentally change the rules of competition. This game-changer effect lies in the possibilities of small and large language models to develop software faster. The goal must be the transition from the traditional hardware-first to a software-first approach. To achieve this, the mindset must change. His goal is to create a liquid organization in which everything is in flux and which works in turbo mode. The art of appropriate leadership is the close exchange with employees.26
The idea of a liquid or fluid organization has fascinated me for a long time. The subtitle of my book „Implementing Reengineering Programs“, published in 1994, is „From rigid structures to fluid processes“. In the publication, I tried to expand the then dominant view of IT-driven process innovations27 to include aspects such as interface competence, the fluidization of organizations and the mental change required for this.28 What has been booming since then is the implementation of resource management and customer relationship management software. Unfortunately, only a few established companies succeed in making the strategic change to fluid forms of organization and management, which is designed as a learning process. It is therefore to be hoped that they will master the current AI wave better than previous waves of digitalization.
Conclusion
- The concept of strategic learning loops has emerged from the combination of two subject areas that have developed relatively separately from each other: Firstly, the learning school of strategy processes and secondly, action research as the basis for agile methods.
- Strategic learning loops are a connecting process pattern that enables a realignment of strategy processes.
- With generative artificial intelligence (GenAI), digital companies have developed a powerful tool that opens up great opportunities but also harbors considerable risks. This tool also has a game-changing effect on strategy processes.
- The aim of politics, science, business and society in a resilient Europe should be to play a pioneering role in the development of a sovereign, trustworthy GenAI and its application in strategic processes.
Literature
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