Strategic Leadership and Decision Making

The Environment of Strategic Leadership
and Decision Making

What is a strategic decision, and how is it different from other types of decisions?
The Character of Strategic Decisions
Strategic decisions are far reaching and consequential for the organization and typically involve the commitment of vast resources. They play out over long time frames and have significant opportunity costs. Strategic decisions should be made within the context of a long-term view or vision, of both the desired end-state and potentially undesired end-states brought about by the contemplated course of action. The desired end-state and potentially undesired end-state can be differentiated by the intended and unintended second- and third-order effects of a strategic decision.
Strategic decisions often must be made under conditions of substantial uncertainty, particularly when complex policy objectives must be reformulated in the face of a dynamic, sometimes volatile strategic environment. Initial assumptions about the environment and other players may be incorrect or incomplete. The complexity of policy decision making within large, bureaucratic systems is evident in national policy debates about taxes, entitlements, and budget deficits. While most wish for a balanced budget, there is-in an era of increasing competition for resources- strident position-taking with regard to how to do it. Drug war and trade agreements such as NAFTA are other examples of complex issues. The range of factors relevant to these decisions is seldom fully known, at least to any one player in the decision process. And the total range of possible effects-direct, second-, and third-order-of a given policy decision may be so complex that even the most exacting search misses something.
VUCA
V VOLATILITY
U UNCERTAINTY
C COMPLEXITY
A AMBIGUITY
Added to the problems of volatility, uncertainty, and complexity is the difficulty of determining the validity of inputs to the decision process. Many key events are ambiguous, especially when dealing cross-culturally, leading to differences in interpretation and contextual meaning. Such conditions foster ideological biases, special interests, and tensions between organizational subcultures. Thus, a strategic leader must know how to identify sound inputs embedded in a swamp of biased arguments. This task is made more difficult when inputs come from a wide variety of disciplines beyond the scope of any single executive. And, many strategic decisions must be made in crisis situations or under other stressful conditions.
Strategic decisions often emerge from arenas of strong partisan competition for resources. The national political arena is intended to foster debate about the allocation of resources for the national good. Partisan competition for resources reflects the advocacy positions of the major parties as they represent their constituencies, and their positions are represented in an adversarial manner. The hard bargaining often takes the form of positional negotiating, rather than in a process searching for common goals and pathways acceptable to all constituencies.
The decision making process must ensure that all competing views are heard and that priorities among them are sorted out. More importantly, the process must ensure some reasonable level of agreement or consensus about the intended end-state and a commitment to the course of action. Without agreement on goals, there can be little hope of collective effort.
There also is the dilemma of assumptions. Some assumptions taken as incontrovertible may in fact be questionable. In the decision making process, these assumptions are often not questioned, to the chagrin of the decision maker. A good example is the "Domino Theory" that guided many policy decisions in the 1960s and 1970s. It was assumed that containment of communism required a band of non-Communist states encircling the Communist powers be maintained. The insurgent challenge to the Republic of Viet Nam thus was construed as a challenge to global security and to U.S. objectives. McNamara (1995) asserts this assumption was fundamentally flawed because it ignored a thousand years of history in Indo-China and intense Vietnamese nationalism. An unbiased study of that history would have revealed the flawed assumptions.
Direct/Indirect Effects
Some decision effects are indirect, often unforeseen, and therefore unintended. A given policy decision may set into motion a string of cause-and-effect events that play out over a number of years. Some of these second- and third- and even fourth-order effects may be unanticipated, and undesired. Effective strategic decision making requires planned responses to second- and third-order effects; it is more like chess than checkers. There are more options, the game is not linear, and the plethora of potential outcome often is unanticipated.
The contrast between the peace agreements of the two World Wars is illustrative. Following World War I, peace agreements were traditional within the context of a thousand years of European existence. The agreements severely punished the aggressor. By contrast, the strategic vision of Marshall and other Western political leaders after World War II established the necessary conditions for re-emergence of former aggressor nations as respectable members of the world community. The narrow and foreshortened vision of the 1917 decision makers reflected a lack of understanding of the indirect effects of their policies, and of the complex, dynamic system of cause and effect associated with their decisions.
Other effects are hard to gauge and may be badly estimated. This is particularly true when the system involved is complex, incompletely understood, or when the policy impacts across cultural boundaries. The economy is an example of a system that is incompletely understood. In balancing the budget, some argue for cutting capital gains taxes, citing higher total revenues obtained when lower capital gains tax rates have been applied. Others ask the question, "How can that be?" The answer lies in the dynamics of the system and the assumptions one makes about how the capitalist system works.
Assumptions about direct and indirect effects of different monetary policies are also different, reflecting incomplete understanding of the economic system, including its dynamic interrelationships with other systems. (For example, the emphasis on education, on the one hand, and tax reduction, on the other hand, reflect different assumptions not only about direct and indirect effects, but also about the interrelations between economic and non-economic factors important to the nation's global competitiveness.) Finally, the two opposing U.S. political parties reflect two different subcultures. Culture, broadly speaking, is the collection of beliefs, values, assumptions, and expectations held by members enabling them to understand the actions of others. This understanding gives meaning to their work, and tells them how to behave in harmony with others. To the extent major differences between the parties remain unresolved, so will the debates remain unresolved and a unifying vision of shared national goals and objectives will remain obscured.
STRATEGIC DECISION
• CONSEQUENTIAL, NOT UNIMPORTANT
• LONG-TERM, NOT SHORT-SIGHTED
• SYSTEM-WIDE, NOT STOVE-PIPED
• CONTEXTUAL, NOT STRUCTURAL
• RARELY FINAL.
The decision making process at the national level is similar to that at lower levels, but there are important differences. First, most decisions are shaped and made by small groups involving diverse personalities, ideologies, and organizations. Second, because of the small-group process, negotiation and compromise are the norm. Third, decisions are rarely final; rather, the dynamic environment requires continuous reassessment. Fourth, the large amount of relevant data from diverse disciplines at the national level necessitates the use of sophisticated techniques to integrate quantitative and qualitative factors in a manner not found in lower levels of decision making.
OBSTACLES TO EFFECTIVE
STRATEGIC DECISION MAKING
• FORE-SHORTENED VISION OF POLICY MAKERS.
• DISAGREEMENT ON DESIRED END-STATE.
• INCORRECT OR INCOMPLETE ASSUMPTIONS.
• INCOMPLETE KNOWLEDGE OF RELEVANT FACTORS.
• MIS-ESTIMATION OF POLICY EFFECTS.
• MIS-CALCULATION OF INDIRECT EFFECTS.
• INCOMPLETE UNDERSTANDING OF SYSTEM DYNAMICS.
• INCOMPLETE UNDERSTANDING OF CROSS-CULTURE EFFECTS.
• PARTISAN RESOURCES COMPETITION.
• MISMANAGEMENT OF THE DECISION MAKING PROCESS
The decision making process just described has inherent problems. It often is slow and frustrating to executives accustomed to making firm decisions based on professional judgment. Negotiation and compromise can lead to the least common-denominator solution, especially if the decision making process is poorly managed. Groups and organizations tend to develop official "definitions of situations" that discourage diverse views and can fall into a malaise described as "groupthink" (Janis 1983). And, bureaucratic ploys and strategies lead to power struggles, confrontation, and adversarial relationships. These contaminating variables distort the process, and lead to less than rational decisions.
Strategic decision making is the ability to think insightfully about consequential events over time, to understand what causes long-range effects in and on complex and dynamic systems, and to bring partisan, competing interests together under shared goals. Within the context of decision making, "strategic" implies consequential, long-term, complex, system-wide and, at times, poorly understood, ambiguous, and uncertain characteristics. Increasingly, the worldwide environmental context of strategic decision making is also fast-changing and volatile.
Some of the skills effective for decision making at the operational level are, of course, appropriate at strategic policy-making levels. Sound judgement, analytical abilities, and a systematic approach to problem solving are critical skills at all levels. Other skills may, however, not be transferrable, and can even be obstacles to problem solving at more senior levels. Thus, the transition from operational decision making and problem solving at lower levels to performance at the strategic level is essential.
Foundations for Strategic Leadership and Decision Making
This leaves open the nagging question of how best to prepare for effective performance in the arena of national security decision making. The complexity of the strategic process argues against standardized formats. Rather, it is more appropriate to develop an executive skill referred to as perspective-taking. This skill- one not always easily or equally well-provides a base for national security decision making.
The existing literature on executive leadership has been categorized into four bodies of major theories: conceptual complexity, behavioral complexity, strategic management, and visionary/inspirational leadership (Zaccaro 1996). While the four bodies are distinct in many aspects, there are some common views about what it takes for executives to be successful.
Conceptual Complexity Theories. The basic premise of conceptual complexity theories and models is that executives operate within increasingly complex environments, characterized by greater information processing demands, and by the need to solve more ill-defined, novel, and complex organizational problems. To survive and thrive, executives require significant conceptual abilities to make sense of, and successfully navigate within, these complex environments (Zaccaro 1994).
Stratified Systems Theory (SST) posits seven naturally occurring levels in large organizations. Each level has an associated level of complexity. The key personality variable in Stratified Systems Theory is conceptual capacity, defined as the generalized set of abilities that help an individual to cope in task environments characterized by volatility, complexity, ambiguity, and uncertainty (McGee, Jacobs, Kilcullen, & Barber 1996; McGee 1997). As an individual rises through the hierarchy of an organization, higher levels of conceptual capacity convey competitive advantage to that individual and to the individual's organization.
QUINN'S COMPETING VALUES MODEL*
FLEXIBILITY PREDICTABILITY
INTERNAL
MENTOR COORDINATOR
FACILITATOR MONITOR
EXTERNAL
INNOVATOR DIRECTOR
BROKER PRODUCER
*Adapted from Zaccaro 1996
Behavioral Complexity Theories. Emphasis in behavioral complexity theories and models is on multiple roles and behavioral patterns required of executive leaders (Zaccaro 1996). Major theories include Mintzberg's (1973, 1975) classification of managerial roles, Tsui's (1984) multiple constituency framework, and Quinn's (1988) competing values framework.
Executives deal with multiple constituencies that make differing demands. These constituencies can be internal to the organization (e.g., superiors, peers, subordinates) or external to the organization (e.g., competitors, investors, the media). Executives must display differing behaviors to be effective because these constituencies have differing values. What the media values is very different from what Congress values.
MINTZBERG'S MANAGERIAL ROLES*
INTERPERSONAL ROLES
FIGUREHEAD
LEADER
LIAISON
INFORMATION ROLES
MONITOR
DISSEMINATOR
SPOKESMAN
DECISIONAL ROLES
ENTREPRENEUR
DISTURBANCE HANDLER
RESOURCE ALLOCATOR
NEGOTIATOR
*Adapted from Mintzberg, 1975, reported in Zaccaro, 1996.
Strategic Management Theories. Strategic management theories and models argue that executive effectiveness emerges from an appropriate fit between the organization and its environment. The role of the executive is analysis, creation, and management of this fit. Executives scan and analyze the environment, formulate appropriate coping policies and strategies, implement these policies and strategies, and evaluate consequences given subsequent organizational conditions.
Empirical support for strategic management theories and models focuses on executive characteristics of strategic leadership and decision making, with demographic and personality variables receiving the most empirical support (Zaccaro 1996).
Visionary/Inspirational Leadership Theories. Visionary/inspirational leadership theories and models include theories of charismatic and transformational leadership. The common theme is that leaders develop and use their vision to structure and to motivate collective action. Considerable emphasis is placed on empowerment and development of human resources, especially subordinates. These models of leadership offer a number of characteristics that enhance a leader's ability to lead, including cognitive abilities (e.g., creativity, reasoning skills, intelligence, verbal ability, cognitive complexity), self-confidence, motivation, propensity for risk, and social skills.
Stratified Systems Theory (SST). A key notion in the development of executive-level leaders is the changing nature of performance requirements as a function of organizational level. What we need is a tool for understanding the nature of those differing performance requirements.
Stratified Systems Theory is a body of theory that asserts leadership tasks at the top of large-scale organizations are quite different from those at the lower levels. This is because the nature of work changes as an individual moves up through the hierarchy of an organization.
Levels of Organizational Stratification Proposed by Stratified Systems Theory*
There are three broadly defined strata to most large-scale organizations: the top levels (strategic), the midlevels (organizational), and the bottom levels (production or action-oriented). Relatively inexperienced leaders-ensigns, lieutenants, and captains-at the lower levels are responsible for getting things done, so they are action-oriented. They have little latitude in the decisions they make, procedures they use, and the degree of innovation they can employ. They may improvise but rarely can they innovate because, at their level of leadership, consistency of action is important.
The midlevels are responsible for setting midterm goals and directions and developing the plans, procedures, and processes used by the lower levels. Plans, procedures, and specified processes are major tools for coordinating effort, particularly in large-scale organizations with many independent parts that must act in a coordinated way. The mid-levels are also responsible for prioritizing missions and allocating resources to tailor capability at the lower levels. This includes supervising resource allocation plans that implement concepts developed at higher levels, as in the Department of Defense's Planning, Programming, Budgeting, and Execution Systems.
Top-level leaders-three and four stars-are responsible for the strategic direction of their total organization within the broad context of the strategic environment-increasingly global. By its very nature, the term "strategic" implies broad scale and scope, a mode of forward vision extending over very long time spans-in some cases out to fifty years or more. So, strategic leadership and decision making is a process by which those responsible for large scale organizations set long-term directions and obtain, through consensus building, the support of constituencies necessary for the commitment of resources.
The ICAF Experience
Your ICAF year marks a transition from duties you have had to responsibilities of an increasingly strategic nature with far-reaching influence. To be effective, you will need to be more proactive, rely less on established ways of doing things, and depend more on analytic, integrative, and evaluative thinking skills.
The national security decision making system includes the federal bureaucracy, the statutory functions of the major components, and the interrelationships among them. For example, in the defense budget, we need to understand the Planning Programming Budget Execution System (PPBES), the role each organization/agency/office plays in the process, and the influence of strategic constituencies, including foreign and domestic. In the formulation of foreign policy, we follow a similar procedure and need to understand, the National Security Council (NSC), the Congress, relevant governmental departments, and strategic constituencies outside of our government, including foreign nations.
However, the formal part of a social system is only the tip of an iceberg. The essence of the larger system is the informal subsystems within which personal-bureaucratic-political proposals and policies emerge. Formal systems are described in rational, logical terms that are comfortable to deal with. Informal systems are described in nonrational (not irrational) psychological terms. There is a world of difference.

THE STRATEGIC ENVIRONMENT
You are living in the period of time that will produce more change for humanity than any previous era in history. It is a time of extraordinary importance that will fundamentally reshape almost every aspect of your life during the next two decades. Wholesale change is taking place in almost every segment of your reality-and the pace will only increase in the coming years.
John Peterson
The Road to 2015
The process of strategic leadership and decision making begins with an assessment of the environment within which it occurs. Strategy can be compared to a plan, except it is broader in scale, long term in nature, and surrounded by more uncertainties. The strategic choices of organizations-and nations-also may be limited by constraints imposed by their environments, e.g., the state of near-famine in North Korea. Both North and South Korea desire integration of the peninsula. However, the two concepts of how this would happen, and which political system would become dominant, are radically different. Thus, environmental factors are influencing capabilities for strategic choices that may not be fully played out for many years. Perhaps previous strategic choices by each of these nations, dating back as far as three or four decades, may well have shaped the constraints and opportunities in the present environment.
This concept of shaping the future is important for decision makers. Successful strategic decisions will, either by design or accident, shape both future conditions and the competitive advantage enjoyed by the organization or nation at that time.
A GENERAL MODEL OF HOW ENVIRONMENT PROMPTS
STRATEGIC DECISIONS
ENVIRONMENTAL DEMANDS AND CONSTRAINTS
STRATEGIC ASSESSMENT
STRATEGIC DECISIONS/PLANS
The significance of competitive advantage stems from the competitive nature of open systems. Organizations--and nations-- are open, or only partially bounded, systems, that are dependent on their environment for resources. When resources are in short supply, organizations-and nations-must compete for them. They do so by scanning forward, creating estimates that enable them to identify long-range goals, and put into motion courses of action designed gain competitive advantage.
COMPETITIVE ADVANTAGE
AN ATTRIBUTE OF AN ORGANIZATION OR INSTITUTION- OR NATION- THAT ENABLES IT TO COMPETE MORE EFFECTIVELY FOR RESOURCES, AND THUS TO SURVIVE.
THE STRATEGIC SCAN
The purpose of national security strategy is to set and achieve objectives that, in the long term, will provide a high level of security for the nation and its citizens. This purpose is expressed in a process that scans the strategic environment, forms an assessment, conceives long-range objectives, and formulates long-range plans to achieve them.
KEY QUESTIONS ABOUT THE STRATEGIC ENVIRONMENT
• WHO ARE YOUR MAJOR COMPETITORS?
• HOW COMPETITIVE IS YOUR ORGANIZATIONS FOR THE LONG TERM? wHY?
• WHAT ENHANCES/DETRACTS FROM YOUR LONG-TERM COMPETITIVENESS?
• WHAT CAN YOU DO/ARE DOING FOR YOUR STRATEGIC PLANNING TO REMOVE LONG-TERM OBSTACLES AND EXPLOIT ADVANTAGES?
• DO YOU ANTICIPATE MAJOR RESOURCES PROBLEMS FOR THE FUTURE? iF SO, HOW DO YOU PLAN TO DEAL WITH THEM?
• DO YOU SEE ANY THREATS TO YOUR LONG-TERM SURVIVAL?
This strategic scan is extraordinarily difficult, and examples of inaccurate scans abound. Some of these can be attributed to the fundamental difficulties involved in "seeing the future." It seems paradoxical to speak of an environmental scan reaching out 20+ years, and, in fact, this is possible only in the broadest terms.
Strategic decision makers must gain a sense of dynamic forces in their environment to create good strategy. One building block is to obtain a sense of history, coupled with the reflection needed to examine the flow of events over time in order to understand the cause and effect linkages that have been operational. A frame of reference must be built.
A second critical building block is the conceptual skill and openness needed to test the historical frame of reference over time, to ensure it is still representative of the real world. This obviously speaks to the use of feedback loops.
Barriers to accurate strategic scans exist in both the environment, and in the decision maker. George (1980) describes many of the barriers internal to the decision maker. They include his/her personal view or stake in the outcome, which may make objective considerations difficult.
Other barriers are the personal values of the decision maker that might lead to evaluations not shared by other players; the risk that a course of action might fail and threaten self-esteem; the risk that a course of action might hurt career prospects; and the risk that advancing a course of action might lose the support of key constituencies.
The strategic decision making process must deal with the four barriers described in the previous chapter: rate of environmental change (volatility), unpredictability of change (uncertainty), the intricacy of key decision factors (complexity), and vagueness about the current situation and potential outcomes (ambiguity).
Rate of Change: Volatility
Peter Vaill coined the phrase "permanent white water" to describe the rate of environmental change in the world as we know it. Futurist John Peterson estimates that the total amount of information in the world is doubling every 18 months or less. And new technology is making it possible to generate even newer technology faster; microchips now being produced are themselves being drawn by computers, because they are too complex for humans to construct by hand.
A ROBUST SYSTEM
CAPACITY FOR TIMELY SYSTEM CHANGE. EITHER ANTICIPATE OR ADAPT TO ENVIRONMENTAL CHANGE TO MAINTAIN COMPETITIVE ADVANTAGE.
• ACCURATE, COMPREHENSIVE ENVIRONMENTAL SCAN
• ACCURATE ARTICULATION OF KEY VALUES, BELIEFS, AND ASSUMPTIONS
• FREEDOM TO QUESTION VALUES, BELIEFS, AND ASSUMPTIONS
• CREATIVITY TO FORMULATE NEW OPTIONS
• TOLERANCE OF RISK INVOLVED IN NEW COURSE
This relevance of volatility to strategic leadership and decision making stems from the competitive nature of the world. Nations, states, organizations, societies- systems and subsystems- all seek increased wealth or power, or both. But power and wealth are finite commodities, so the stage is set for competition. Even when great strategic alliances such as NATO are formed, it is with a view toward attaining a competitive advantage in relation to another strategic alliance.
However, the character of competition is also changing. For example, a competitor can be hurt by rapid obsolescence of its capital-intensive weapon system, so it might make sense to pursue new development with just that aim in mind-not the destruction of that system on the battlefield, but rather by superiority on the balance sheet. Just such a strategy was a factor in the planning of weapons systems development in this country from the late 1970s until the collapse of the Soviet state in 1989. That world-changing collapse came when the Soviets could no longer compete economically.
Finally, much of the incredible success of coalition forces in the Persian Gulf War grew from two technology advances: imaging technology that enabled (primarily) U.S. armor to see and engage Iraqi armor outside the target acquisition range of the Iraqis; and precision guidance technology that enabled aircraft to engage Iraqi forces outside the effective range of Iraqi armor. The critical lesson is that both technology advantages were outcomes of U.S. decisions made years earlier directing capital investment into research and development, in contrast to Iraqi decisions to continue capital investment in amassing products of old technology.
It would be simplistic to leave this example just at the level of decisions about research and development. Both sets of decisions also reflected underlying assumptions by strategic leaders about the nature and rate of change in the world environment. One set of assumptions was accurate; one was not. Environmental change often determines where the point is reached when a change in policy should be initiated. There may be only a thin line between success through persistent advocacy for change, and failure because of inability to change.
History is littered with examples of strategic decision makers who did not see change in time. The advent of air power is an example. In the 1920s and 1930s, promising careers were terminated because of air power advocacy. Yet, World War II saw the first decisive naval engagement where no surface ship fired at an enemy surface ship- the Battle of the Coral Sea. Only the advent of World War II's armored formations quelled the remaining horse cavalry champions. And just a few years later, only the influence of the Congress kept a nuclear submarine advocate on active duty.
The lesson is clear. Without visionary leaders who can guide reformulation of strategic policies and objectives, the nations, organizations and societies they lead are placed at competitive disadvantage. And change is volatile, driven on the "hard" side by technology and on the "soft" side by advancing communication's capabilities. The challenge to strategic leaders, to their leadership and decision making processes is increasing at a critical pace.
Uncertainty About the Present Situation and Future Outcomes
Strategic leadership is complicated not only by the rate of change in the global environment, but by uncertainty about what the effects of even known changes are likely to be. This uncertainty results from both the complexity of systems and subsystems at the strategic level and from incomplete knowledge about the current situation. Uncertainty also arises from the competitive nature of leaders on the world stage who understand that significant competitive advantage often is gained through surprise. Therefore, strategic actors seek to conceal their strategic directions, particularly their means for achieving their directions, from their competitors.
The deception planning integral to achieve surprise for Operation Overlord-the Allied invasion of northern France in 1944-is an excellent example. Through a complex set of channels, information was fed to the German High Command that led to a devastatingly incorrect estimate of the situation and Allied intentions. These channels included the "turning" of the entire Axis spy network in Britain, the fortunate presence of dedicated double agents, and a huge electronic shell designed to show the presence of a powerful Allied force in England opposite the port of Calais. So, strategic leadership and decision making sometimes must resolve uncertainty by penetrating an enemy's carefully laid screen designed to confuse.
Multiplicity of Key Decision Factors: Complexity
On a global scale, the demise of the U.S.S.R. as a superpower, because of its inability to compete economically, should have been predictable. In fact, this outcome was the objective of U.S. resources allocation strategy during the Reagan era. Perhaps today's strategic policy makers do not fully understand the complexity of the multipolar world that now follows the end of the U.S./USSR bipolar world, and have not yet developed an adequate philosophy to guide the formulation of national objectives for the 21st century. In consequence, much debate continues about future strategic courses of action.
The nation's long-term energy policy provides a good example. Faced with continuing depletion of global petroleum reserves-and with accumulating environmental damage as a result of burning fossil fuels-a long-range energy program would seem essential. Our society rests on the effective operation of many complex subsystems, three of which are agriculture, manufacturing, and transportation.
Distress in one means the others cannot function effectively. In particular, without the transportation system, large scale urban life as we know it would not be possible. Yet all these systems depend on fossil fuels, and the nation has not moved significantly toward decreased dependence on these fuels, particularly imported petroleum, in the face of known increased competition for petroleum as developing nations industrialize.
The significance of this lack of movement is apparent when the delicate balance of the monetary system and its sensitivity to inflationary pressures, are taken into account. The near-cataclysmic response of the national leadership to the blip in gasoline prices in the late spring and summer of 1996 suggests how delicate the balance is. A rise in prices of less than twenty cents per gallon triggered a sell-off from the strategic oil reserve and a call for temporary repeal of a part of the federal gasoline tax. Such a blip is certain to re-appear in much magnified form in the future if a valid, long-term strategic policy is not developed and implemented.
Another example is the debate about capital gains taxes. The data seem to show that a high capital gains tax suppresses federal tax income from capital gains. A high tax rate inhibits investor sale of capital investments in order to realize gain. So, a lower tax is better for deficit reduction, an apparent contradiction. But the question remains whether this is good or bad, even if it is true. It seems likely that a decrease in capital gains taxes would also tend to depress the stock market, as investors sell stock to realize gains. Is that right? If so, is it good or bad? And, for whom?
System complexity impacts hugely on the capacity of leaders as strategic decision makers to formulate and execute effective policy. Cause and effect relationships are difficult to see, much less assess, when there are many causes, and when many divergent effects exist. Determination of cause and effect relationships is made more difficult by uncertainty about the time lag of effects in complex systems. In addition, there may be many-linked cause and effect chains. A given initial cause may produce an effect that gives rise to a second-order effect which may, in turn, give rise to a third-order effect.
The challenge to strategic leadership is twofold: a frame of reference, or perspective, that is dynamic enough for the decision maker to recognize, understand, and explain to others; and a leader's mastery of decision tools and processes that enable him or her to bring a broader set of perspectives than just his/her own into the decision making process.
Lack of Clarity About the Meaning of an Event: Ambiguity
Ambiguity exists when a given event or situation can be interpreted in more than one way. System complexity contributes ambiguous meaning, as does uncertainty about the full range of factors operating in a situation. Ambiguity may also exist because the intentions of significant actors in the strategic situation may either not be known or may be misinferred. In intelligence work, for example, it is easier to provide an accurate estimate of capabilities than of intentions, because intentions often are cloaked inside the shell of a complex and effective deception plan.
The operations plan that was executed during the Gulf War seemingly was invisible to the Iraqis for at least two reasons. First, there was a deception plan, one that worked as well as the D-Day deception plan in World War II. In the Persian Gulf, the Marine forces may well have been frustrated by their limited participation, but in all likelihood they saved many lives on both sides by tying down Iraqi forces on the coast. Second, control of the skies took the "eyes" away from the Iraqis, so that they could not see the massive maneuver to the west across the Saudi high desert. They misinterpreted what they could see, and were vulnerable to the end sweep by highly mobile coalition forces.
Leaders must expect to encounter ambiguity as they transition to more complex situations in their organizations. Strategic leaders also must do a great deal of consensus building, as a normal part of their leadership roles. The consensus decision making process is designed to uncover information not previously held, perspectives not previously understood, and knowledge not previously applied to the solution-generating task.
The challenge to strategic leadership is recognizing that the decision maker cannot have a "stand-alone" perspective, and that effective strategic decisions must flow from a managed process that produces a perspective through consensus that is broader than any single person probably possesses.
National Security Strategy
Volatility, uncertainty, complexity, and ambiguity (VUCA) are not independent concepts. While each may describe certain aspects of a decision task. Each feeds the other. Strategic policy objectives are formulated within the context of this VUCA world.
To say that there is a new world order, and that the United States is the single remaining super-power somehow gifted with the responsibility for global leadership, is to do no more than open the door on the process of strategic policy formulation. The hard work is in formulating policy objectives that are compatible with the world that will emerge over the next three or four decades. These are the policy decisions that will have added value to the world community as well as to the nation itself. This "new world" is now being shaped both by environmental forces and by the actions of key players on the world scene.
In 1980, the Tofflers wrote about a sea change-a contextual change of such mammoth proportions that old paradigms would no longer suffice. The Tofflers described two major revolutions that have transformed the course of human history, and asserted that we are now in the midst of a third revolution. The agricultural revolution began some 10,000 years ago, and the industrial revolution some 300 years ago. Each produced sweeping changes in how human effort was organized.
Now we have a third revolution-a third wave, a third age- the Information Age. With it comes an inundating wave of writings about what the information age is all about and what it will do either to or for us. The "third wave" is thought by many to be a dominant force transforming nations and societies, leading to a qualitatively different paradigm by which to interpret world events.
Just as the economic superstructure in the advanced industrial nations rests on food production, so the technology of the Information Age rests on the productive capacity of the Industrial Age. But the vast societal and cultural changes that are likely to occur later are unclear. The only certain things are that the world will get more complex, and will change in ways not clearly seen now.
The challenge for strategic leadership is to understand the dynamics of change that are now occurring, and develop the clearest possible visualization of the end results of change, with enough lead time to ensure a competitively advantageous position can be achieved.
VUCA as a Base
Coping with VUCA is the essence of strategic leadership. And, if the United States is to aspire to permanent global leadership, VUCA requires understanding different cultures, different kinds of national objectives, and different means other nations employ to achieve their objectives. And the logic for working effectively with nations around the globe must include not only competitive advantage for the United States, but "value added" for other nations.
We know what our existing knowledge lets us know and we see from our own perspectives, sometimes dimly. We make assumptions about other cultures, often mistakenly, based on what is reasonable in our own culture. We infer intentions based on what our intentions would be in that situation, "if we were they." Strategic leadership must, of necessity, be based on a broader frame of reference. Using a VUCA Time Horizon will help provide that reference.