Clueless executives, incoherent companies

by Vault Consulting Editors | January 21, 2011

  • My Vault

Consultants at Booz & Company this week published the results of a recently-conducted survey of 1,800 executives regarding the use of strategy in business. Many executives, the firm says, develop and implement strategies that are blind to—or worse yet, visibly incompatible with—key factors in a company's success.

The survey's goal was to shed light on the problems faced by "incoherent" companies, businesses that have failed to successfully administer the transition from abstract strategy to day-to-day operation. "Incoherence" is an all-too-common sight in modern businesses, the authors suggest; not only do they struggle to implement strategy at ground level, but most executives lack the knowledge to develop effective strategies that differentiate their company from their competitors.

Ultimately, Booz & Co. concluded that only 13 percent of businesses pass their coherence test. Here's why:

Ineffective strategies

"Half of the executives (50%) consider setting a clear and differentiating strategy a significant challenge," the survey claims. Worse yet, 43 percent don't think their current strategy fundamentally differentiates their company in the market. Consider McKinsey's take on differentiation (hint: it's extremely important), and consider Booz's findings; most executives, it seems, are blindly following the pack.

Well-worn strategies aren't always good options. "In fact," the survey's authors describe, "most executives (52%) do not feel their company’s strategy will lead to success. Only 21% say their company has a right to win in all the markets in which it competes." Clearly, there is a fundamental problem with the way in which executives develop and select strategies (if they select them at all—49 percent say their company "has no list of strategic priorities").

57 percent of surveyed executives formulate strategies 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." Not good enough, say the consultants at Booz & Co. So, how to formulate better strategies? More on that in a moment.

Ineffective implementation

Not only do most executives struggle to develop sound business strategies, but they also fail to implement their strategies to the extent necessary for them to reach their potential. Most executives (64 percent), the survey says, name "too many conflicting priorities" as their "biggest frustration factor," which makes it difficult to apply a strategy firm-wide. Similarly, and even more to the point, 56 percent report that their "biggest challenges" are "ensuring that day-to-day decisions are in line with strategy" and "allocating resources in a way that really supports the strategy." Incoherence at work.

The consequences of this corporate fragmentation are noteworthy. 54 percent of executives say that, as a result of poorly-aligned strategy and operations, "their company's capabilities do not reinforce each other." In fact, at most companies the opposite is true: 82 percent report disruptive competition between different departments and business units for resources. Further, most (53 percent) admit that "the way their company creates value" is "not understood by employees and customers."

The Booz alternative

So, the problem is two-fold: executives have difficulty developing effective business strategies, and they also struggle to implement them effectively. The consequences range from the obvious (poor strategies) to more enduring problems (say, cultures of ignorance or wasteful internal competition)—consequences that, according to Booz & Co., a whopping 87 percent of businesses suffer from.

How can all of these companies improve their strategic decision-making? It starts with the development of better strategies. "Only 43% 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," the results reveal. And that's exactly what they should be doing, the survey's authors suggest. Another tip is to keep it simple: "Executives who say their companies have very few (one to three) firm-wide strategic priorities are the most likely to say their companies have above average profitability and revenue growth," the firm asserts. See McKinsey on strategy development for more advice.

Next, it's all about getting your day-to-day operations to match your strategy. For that, businesses can consult the firm's proprietary 'coherence algorithm', which can deem a company suitably coherent or requiring change. That's probably an expensive option, so take my advice instead. Effective executives should be able to enact change firm-wide without a fancy algorithm, I say; no true leader needs to hire a bunch of analysts to do their job (leading, that is).

For more information:
Booz & Company: The Coherence Premium

Filed Under: Consulting

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