In support of my “why does business strategy fail” work here is some research that asks some very direct questions of senior executives about their strategy with disappointing results.
In 2011 Booz & Co conducted a survey of 2,800 executives from companies of various sizes, geographies, and industries. According to this survey, most executives don’t feel their company’s strategy will lead to success, two out of three respondents admit that their company’s capabilities don’t fully support their strategy, only one in five are fully confident they have a right to win, and the majority say their company has too many conflicting priorities.
Executive frustration is unmistakable
The survey results show that setting priorities is a significant challenge for companies — and that linking priorities to decisions is a hurdle that few companies get past. According to the survey:
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- A great majority of executives (64% of survey respondents) say that their biggest frustration factor is “having too many conflicting priorities.”
- Executives report that their biggest challenges are (a) allocating resources in a way that really supports the strategy (56%) and (b) ensuring that day-to-day decisions are in line with the strategy (55%).
- Half of the executives (50%) consider setting a clear and differentiating strategy a significant challenge.
- In fact, most executives (54%) do not feel their company’s strategy will lead to success.
- Only 20% say their company has a right to win in all the markets in which it competes.
- Most executives (82%) say growth initiatives lead to waste, at least some of the time.
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The root cause of the frustration is incoherence: Many companies’ strategies are not differentiating and are not focused on what the companies are truly good at. Too many companies grab too hastily for what seems like the next answer for growth. They lack a solid framework for determining which set of opportunities will lead to sustainable success. They end up stretched thin, trying to play in too many disparate markets. Winning companies, on the other hand, stick to a well-articulated path to success: They define the fundamental identity of their company by developing a clear idea of what the company does best and how it creates value—and focus their investment on the capabilities that matter. Growth then follows as a consequence of the strategy rather than as a set of separate and often unsuccessful initiatives.The survey confirms that few executives find themselves in that kind of “coherent” environment:
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- A significant number of executives (43%) say their company’s strategy does not fundamentally differentiate the company in the market.
- Nearly half of executives (49%) report that their company has no list of strategic priorities.
- Although most executives indicate that their company has a clear way to create value, most (54%) say that this way is not understood by customers and employees.
- Similarly, most executives report that their company has a clearly stated set of capabilities, but only a third of executives (33%) say those capabilities support the company’s strategy and the way it creates value in the market.
- Very few executives (21%) consider that all of the company’s businesses leverage the same set of capabilities.
- In fact, most executives (56%) admit their company’s capabilities do not reinforce each other.
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Many companies need a major strategy reset. They need to adopt a capabilities-driven strategy to become more coherent
The survey results suggest that most companies start from the opposite direction: They chase external market opportunities and diversify their business and thus become increasingly incoherent:
- Most executives (59%) say their company creates strategy by either “pursuing a broad portfolio of strategic options and spreading the risks” or by “choosing an attractive market and figuring out how to be successful in it.”
- Only 41% say their company’s philosophy about strategy starts from the inside — looking at what they’re great at and finding markets that capitalize on those capabilities.
Based on their coherence algorithm, which was applied to the participants’ answers, only 13% of the respondents work for companies that we would deem coherent. Many companies do see value in adopting a capabilities-driven approach, but few are able to align their strategic direction to the capabilities that make them unique, to make hard choices about differentiation and stick to them. |
The Coherence Premium
The survey results also point to the financial and growth rewards of coherence:
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- Executives who say their company has very few (one to three) firm-wide strategic priorities are the most likely to say their company has above-average profitability and revenue growth (compared with those having more firm-wide strategic priorities or no list of priorities at all).
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- Executives who say their company’s capabilities support the company’s strategy are most likely to say profitability and revenue growth are above average. (The same is true of executives who say their company has a clear set of capabilities, versus those who say the company doesn’t.)
- Respondents whose company is deemed coherent according to our algorithm are most likely to say that their profitability and revenue growth are above average. (They are more than twice as likely to say their company has above-average profitability than those respondents whose company has been characterised as incoherent by the same algorithm.)
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