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Big problems with the way most companies set strategy

27-Jan-2011

The majority of managers in all industries believe that their companies lack a coherent strategy.  

They struggle to set a clear and differentiating strategy, struggle to ensure that their day-to-day activities are in line with their strategy, and struggle to allocate resources in a way that supports the strategy - according to a Booz & Company survey of more than 1,800 executives.

According to the survey:

• 52% of executives don’t feel their company’s strategy will lead to success.
• 49% say their company has no list of strategic priorities at all.
• 67% admit that their company’s capabilities don’t fully support their strategy.
• 43% say their strategy does not fundamentally differentiate the company in the market.
• 53% say that the way they create value, is not well understood by employees or customers.
• 64% say that their biggest frustration is “having too many conflicting priorities.”
• 57% 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 43% say their strategy starts from the inside - looking at what they’re great at and finding markets that capitalize on those capabilities.
• Most worrying, only one in five managers (21%) are fully confident they have a right to win!

Companies with more “coherence” - where strategy, capabilities and product offerings are in synch - perform better financially. 

Companies who have very few (1 to 3) strategic priorities have higher profits and revenue growth - compared to those firms having a longer list of strategic priorities (or worse, no clear strategic priorities at all).

There is clearly a problem with the way most companies set strategy.  Most companies struggle to choose their key strategic priorities - and when they do, they lack the ability to focus on the execution of these priorities.

The root of the problem is that too many companies grab hastily for what seems like the next answer to growth. They don’t use a disciplined methodology to decide the critical few strategic priorities will lead to sustainable success. They end up stretched thin, trying to do a little bit of everything and doing nothing well.  

Winning companies choose a well-articulated path to success:  They choose what they will be excellent at - rather than just trying to sell what they can make.  They get very clear on what differentiates them from competitors, and how they will create value for their customers.  They focus their investment on building the capabilities that matter .

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