Do you sometimes wonder why some companies in an industry succeed and others fail? When strategies look similar between companies, why do some perform better than others?
It may be natural for companies to think that their strategy is missing the mark but that probably isn't the case. Over the last 20 years companies have spent an increasing percentage of their management time developing strategic plans. However many of them have found that they have not achieved the results that they expected from those plans. In fact, many plans are prepared but sit on the shelf awaiting the next revision.
Companies' weak performance is not in fact because they have weak strategic plans; it's because they haven't implemented those plans in an effective manner.
According to recent studies:
• Between 70% and 90% of organizations that have formulated strategies fail to execute them.
• A Fortune Magazine study has shown that 7 out of 10 CEOs who fail do so not because of bad strategy, but because of bad execution.
• In another study of Times 1000 companies, 80% of directors said they had the right strategies but only 14% thought they were implementing them well.
• Only 1 in 3 companies, in their own assessment, were achieving significant strategic success.
Research published by the Harvard Business Review shows that on average, companies deliver only 63% of the performance that is anticipated in their strategic plans.
One problem seen by this study is that less than 15% of companies regularly compare their business performance against their strategic plan. Harvard's survey demonstrates a sequence of events that causes companies to fail:
• Strategies are approved but poorly communicated.
• The lack of communication makes the translation of strategy into specific action all but impossible.
• Lower levels in an organization don't know what they need to do, when they need to do it or what resources are required.
• As a result, expected results never materialize and since management doesn't review old plans, no one is held accountable for the results and the cycle of underperformance gets repeated.
What is going wrong here? Why are strategies poorly communicated? Why aren't action plans developed? Why don't employees know what they should be doing? Why aren't people being held accountable?
Strategic plans aren't being implemented due to a lack of leadership.
Why is there a problem?
The nature of work being performed by companies has changed. Over the last 30 years we have moved from a manufacturing and resource driven economy to one that is significantly service oriented.
Many firms are now driven by intellectual capital.
Baruch Lev of the Brookings Institute has undertaken significant research in this area. His studies found that in 1982, 62% of the market value of public firms could be attributed to tangible assets and only 38% to intangible assets. In 1998 with the rise of the knowledge-based economy, only 15% of the market value of public firms could be attributed to tangible assets and fully 85% could be attributed to intangible assets.
Thirty years ago as a business owner if you ran a manufacturing oriented business it was much simpler to execute on your strategy. Your manufacturing plant would have reported a significant variety of information on its inputs, outputs, production, and inventory etc., all without the extensive use of computerization. Your plant could be finely tuned to produce value economically for customers.
Nowadays, as a business owner it is likely that your business is based on the creativity and knowledge of your people. This intellectual capital is much more difficult to measure and manage that a manufacturing environment.
Business doesn't have the dials, levers, and controls over intellectual capital that that it did in a manufacturing environment.
Another reason that companies have difficulty implementing strategy is that it is a cross functional, multi-disciplinary process. It requires the involvement of marketing, sales, operations, finance and information technology and cannot be approached from the perspective of one discipline only. In order to get the plans for one department such as marketing implemented in an effective manner, it will require the involvement of other departments such as finance and IT. The co-ordination of strategic implementation among different departments within a company is frequently a challenge as each one of the departments does not normally understand the requirements for success of any other department.
But of all of the issues with strategic implementation, perhaps the greatest is that of leadership. A leader's job is to set the vision, communicate the vision and motivate employees to achieve the vision. A weak leader may be able to set the vision but implementation of that vision requires good communication skills and the ability to motivate people effectively.
Strategy implementation is the single greatest problem and the single greatest opportunity facing businesses today. Improving leadership is the key to solving that problem.
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