Transactional vs Strategic Thinking: What’s the Difference?
Organisations are attempting to become less transactional and more strategic in how they operate in bid to become more efficient, profitable and weather marketplace storms. To do so requires a population of strategic thinkers, which is actually a very rare skill. Evidence of this is born out of 50-90% of strategic initiatives failing and 70% of Digital Transformations also failing, phenomenons I have written about in detail in other case studies. To be successful we need to understand what transactional and strategic thinking actually are, how they manifest and the impact they have, individually and collectively.
Let’s explore this now.
Transactional vs Strategic
The model below is based on a decision matrix the US Navy SEALs use for leadership selection. For the purpose of this article I have swapped Low Trust for Transactional, defined as: Relating to the conducting of business, especially buying or selling, and High Trust with Strategic, defined as: Relating to the identification of long-term or overall aims and interests and the means of achieving them. Both definitions have been taken from the Oxford English Dictionary. With them we can demonstrate their relationship with High Performance, defined as: Proactive and on the front foot, and Low Performance, defined as: Reactive and on the back foot. Four archetypes emerge to offer a sense of who might manifest in each area:
These four archetypes correlate with specific behaviours in terms of problem solving and solution creation:
Tactician: Present orientated, able to fulfil immediate need as the problem is known and defined, little awareness or inclusion of past & future in decision making, prepared only for what is directly in front of them, mostly successful.
Amateur: Present orientated, unable to fulfil immediate need as the problem is unknown and undefined, little awareness or inclusion of past & future in decision making, reacts only to what is directly in front of them, mostly unsuccessful.
Myopic: Future orientated, unable to anticipate or fulfil future need as the problem is unknown or undefined, attempts to predict future need and potential based on trends in past and current performance, mostly unsuccessful.
Visionary: Future orientated, able to anticipate and fulfil future need as the problem is known and defined, predicts future need and potential based on trends in past and current performance, mostly successful.
This model demonstrates the key difference between transactional thinkers and strategic thinkers is the ability to consider how action taken now will affect events in the future and whether or not they will arrive at a predetermined outcome. Put another way: Strategic thinking requires far greater level of skill and cognitive ability to identify and follow the breadcrumbs, whereas a transactional thinker is most likely unaware the breadcrumbs even exist. Let me put some context around this with an example:
Transactional Learning & Development: Request received from a line manager to provide some training to perk up their team and give them something that might be of interest. L&D source provider and deploy in accordance with original request. No follow up, no assessment to determine if training was relevant, no way of measuring change in performance if there was any, no ROI.
Strategic Learning & Development: Team proactively make enquires to meet line with managers and understand their objectives, understand barriers to success and who else might have similar issues. L&D team curate targeted training tools, deploy them, then measure change in performance providing a ROI.
Believe it or not, 93% of learning and development is delivered in transactional form resulting no measurable benefit from spending $166Billion annually on corporate training. For more evidence and insight on the scale of transactional thinking in the Learning & Development industry do read: Learning & Development: Whats Your ROI?
Impact on Organisation
If we stay with the modified Navy SEAL’s leadership selection model and apply it to a collective we can demonstrate how each individual archetype affects their team culture. Four organisational states emerge:
These four cultures correlate with specific behaviours that can be measured in the culture of any team or organisation:
Excellence: Discovering and implementing marginal gains that redefine and improve delivery OTIF.
Inferior: Doing the same thing over and over expecting a different result, the definition of insanity.
Anachronistic: Misplaced in time, trapped between now and desired end state, unacknowledged barriers.
Innovative: Constantly evolving to meet changing consumer demand, concurrently exploring or creating new markets.
This model demonstrates the type of culture we get when we scale up thinking styles to departmental or organisational level. Transactional Thinking is of great value when seeking to make incremental gains in pursuit of excellence within an existing framework. Strategic Thinking is essential when a paradigm shift is required, such as a fundamental overhaul of an organisations Ways of Working, AKA Transformation. Let me put some context around this at departmental level with several examples:
Transactional HR: Recruitment team have 100 vacancies to fill. Measure of success is to fill 80% of these vacancies in 12 months. Recruitment team fill 80 out of 100 vacancies in 12 months.
Strategic HR: Recruitment team have 80 vacancies to fill out of 100. Measures of success will be based on: How many candidates have been retained after 6 months or 1 year. How satisfied candidates are with their role, team and line manager. How satisfied their line manager and team are with the candidate. How satisfied the candidates wider stakeholder population are. Percentage of objectives achieved OTIF in 6 or 12 months. Measurable salary ROI is now possible for candidates and recruitment team, as is the reduction in recruitment costs and employee churn.
Transactional Finance: Financial end of year is on the horizon and work to reconcile money in with money out takes place, ensuring accounts meet company’s financial legal obligations, possibly with help from an external auditor, then submit to HMRC.
Strategic Finance: Finance business partner approaches CMO to understand marketing objectives for the coming year. FBP can identify what financial data will be useful to CMO in terms of impact of marketing spend. Marketing department runs numerous campaigns for several product lines. Finance can demonstrate which campaigns are working/not working in real-time to support and influence marketing spend throughout the year and aid CMO to yield superior results.
Transactional Marketing: Marketing team blanket bomb various platforms and outlets to create exposure for product in an attempt to sell to everyone and anyone, as everyone and anyone obviously know they need this product.
Strategic Marketing: Market analysis to understand the demographic most likely to purchase product based on the problem the product solves. Marketing also want to understand where and when the demographic typically spend their money to make their product visible as close as possible to the most likely point of purchase. Marketing also focus spend when buying will most likely be at its peak, reducing cost of customer acquisition and maximising sales.
Transactional Procurement: Compare the cost of a new supplier with others in the market place to determine if fees stated are a fair price for work to be carried out, i.e. new supplier is charging 1.5x previous supplier, ergo offer rejected. Additionally procurement secure 5 year contract with best price, which will either be renewed, expire or put out to tender.
Strategic Procurement: Compare the initial investment with results yielded from similar suppliers to determine value-add, i.e. new supplier charging us 1.5x previous supplier, but likely to deliver 3x measurable improvement over previous. New supplier accepted. Additionally procurement team review ongoing contracts throughout the year to discover the market has shifted for one supplier, changing supplier will retain benefits for less investment with different supplier. Contract has a £1million early termination fee, however a gross saving of £5million would be achieved over remaining contract duration. Spending £1million achieved a £4million net saving.
To understand the number and scale of pitfalls during transformations in terms of effects of transactional and strategic thinking do read: Culture: Strategic Thinking & The Ant Mill Death Spiral.
Impact on Business
The model below is based on a matrix created by Professor of Psychology, Mihaly Csikszentmihalyi who was first to formally investigate the traits associated with high performance, which he collectively called Flow. I have modified it for a business context to correlate a leadership style with its organisational impact by looking at the relationship between Challenge, defined as: Degree of difficulty to be overcome, and Support, defined as: Available resources. Four organisational states emerge:
These organisational states correlate with specific measurable behaviours in any population:
Anxiety: Missed deadlines, avoidance of interaction, negatively impacts employee sickness absence.
Apathy: Absence of enthusiasm or presence of indifference, negatively impacts employee retention.
Comfort: Lack of activity and accountability, negatively impacts employee productivity.
Flow: Pro-active, self-directed, emphasis on personal responsibility, positively impacts all of the above examples.
The reality is more and more organisations are attempting to become strategic in nature in, either to remain competitive or become competitive. In a nutshell, if done well its possible to save a lot of money while making a lot of money. One of the main modern levers to pull to achieve a strategic culture is taking advantage of the vast amounts of consumer data now available. Capitalising on this data requires building an organisation of strategic thinkers. Unfortunately this is actually a very rare skill that results in organisations banging off a glass ceiling, for example 50-90% of strategic initiatives fail as a result of the absence of this skill across the breadth and depth of organisations.
Having amassed all this potentially insightful data there are just not enough people capable of meaningfully interrogating it to create stories that demonstrate where benefits can be realised for their stakeholders. I’ve witnessed the effects of this manifest as behaviours associated with severe anxiety, see model above, while supporting business partners in various departments over the last 10 years. The focus of our work is always to support them to better understand their roles and how to work strategically with their key stakeholders.
If you want to better understand this social phenomenon in the context of Digital Transformations, which have 70% failure rate, then do read: Culture: Digital Transformations & Organisational Readiness.
Conclusion
Organisations are attempting to become less transactional and more strategic in how they operate, in bid to become more efficient, profitable and weather marketplace storms. The major pitfall is the skills required to achieve this are incredibly rare, and these skills are the ones required to meaningfully interrogate the mass of available data, build strategic partnerships and trustworthy relationships to collectively make informed decisions that best predict future need and resulting activity.
The reality is it’s an incredibly slow process to build competence at scale in this area, maybe even impossible as there are limitations associated with intelligence to consider, which I cover in other case studies linked earlier in this one. Another consideration is 84% of your organisation will actively avoid change when you attempt take them in a new direction. To learn more about why this happens do read: Culture: Why Is It So Difficult To Transform an Organisation?
So what can you do in the meantime?
Accept very few people in your charge will be capable or competent in this area.
Develop a selection process that self-determines who your strategic thinkers are.
Give them an undefined problem to solve to find out if they can define it.
If successful, ask them to define an implementable solution with an identifiable ROI.
Let them have a go in a sandbox to find out if it works.
If successful, ask them to figure out how best to role it out at scale.
If you would benefit from support your organisation to develop leaders with strategic thinking skills, ensuring you take a strategic approach, then please do schedule a call with me by putting a 60mins in my diary at a time that suits you. We can discuss your situation and options over an eCoffee.
Best Wishes
Kenny
