What Do You Read to Lead?

This is the second in an occasional series of book reviews by David La Piana. For this series he chooses books that are likely to be outside the nonprofit leader’s normal reading list but offer useful insights.

Book Review of Elevate: The Three Disciplines of Advanced Strategic Thinking, by Rich Horwath 

Rich Horwath is a management consultant who likes research, which means I like him. He has conducted his own large-scale studies of the role of strategy in organizational success and is also well-versed in the extensive strategy literature. His work focuses on large companies, not nonprofits, but I think a fair amount of his observations are directly relevant for us.

Consider this. Horwath cites a March 2008 Harvard Business Review article, “When Growth Stalls,” by Olson, van Bever, and Verry who report that about 70% of organizational failure can be attributed to poor strategy. He then goes on to assert that it is not, as we have been led to believe, poor execution of our strategy that accounts for these failures but bad strategies themselves. This bold claim rests on a study of 750 bankruptcies over a 25-year period, conducted by Paul Carroll and Chunka Mui: “Seven Ways to Fail Big,”  also from HBR (September 2008). Horwath builds on this theme citing a study by Robert Kaplan and David Norton, “The Office of Strategy Management,” which reports that 95% of employees of big companies surveyed don’t even know what the firm’s strategy is (HBR, October 2005).

Similarly, let me ask whether these troubling results on the lack of strategy in our business organizations are an industry-specific finding, or do they ring any bells for you in the nonprofit sector? Horwath wraps up this line of argument with the claim, reasonable enough after you see his research, that (and I am broadly paraphrasing here) Most people, from executives to line workers, in most organizations, don’t have a clue what strategy is or how important it is to their success. So much for the impact of half a century of serious study; untold tons of studies, articles, and books (including my own); and a near universal, if self-imposed, requirement that organizations, large and small, for profit or nonprofit, develop strategic plans.

Another reason I like Horwath is that his thinking validates my own experience in the field. He says that differentiation in the market is a top challenge most leaders miss, an argument we have made repeatedly in both The Nonprofit Strategy Revolution and The Nonprofit Business Plan. But the point I find most compelling in Elevate is that: “Business-model innovation is the new essential competency. It’s hard. It will separate tomorrow’s winners from the losers.” Horwath is quoting Fortune magazine’s editor Geoff Colvin (“Your Business Model is Obsolete,” Fortune, February 25, 2013).

In most of the nonprofit sector we have stagnant business models. That is, we tend to do what we have long done, paying for it the way we have long paid for it. We may try to grow by doing more, but the pace of real innovation is painfully slow. This is in part due to the intractable nature of human problems and in part to a lack of risk capital to try new things, to innovate. Nonetheless, in my experience it is as true in the nonprofit world as in business that the innovators lead the way, achieve outsized success, grow their organizations, and achieve a greater measure of financial sustainability. Horwath argues that you can innovate by doing new things or by doing the same things better. This echoes our own work in Play to Win: The Nonprofit Guide to Competitive Strategy where we argue that nonprofits can develop “asset advantages, that are truly new and different offerings, and/or “execution advantages,” essentially Horwath’s formulation that you do similar things better.

I strongly recommend Elevate to any nonprofit leader, worker, or funder. As always when reading a business book, you have to translate it into the nonprofit context, weigh which ideas are relevant or helpful, and then look for a few ideas that were new to you and that you can apply in your work. This book survives that test. It is full of interesting formulations and new ways of looking at basic strategic challenges, both internally and in the marketplace. Give it a read, and let me know what you think.