On the face of it, a finding that fully 60% of executives from around the world are not able to say that their companies’ strategies will lead to success looks alarming. Especially when a quarter of those interviewed are from the uppermost levels and when that figure is up from 52% three years ago.
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However, Paul Leinward, a partner at the management consultancy Booz & Company, which carried out the research, says it is understandable. The ongoing problems in the global economy are continuing to throw up challenges that companies are struggling to meet. Moreover, businesses seem to be responding to them in a way that betrays a lack of confidence. “Organizations are sitting on top of each other without true differentiation,” he says.
This is because they are listening to the market, as they should, but not taking sufficient account of their capabilities. The result is that they are trying to do too many things rather than picking areas that they are good at and seeking to compete by maximising their capabilities in such areas. “You don’t have to win in every sector,” says Leinward.
He adds that the temptation to cover the whole market is particularly prevalent in new-technology industries, but it is not limited to them. “Most people are just trying to steal market share and not build for the long term.”
Being Big Is Not Enough
Such thinking is linked with the idea that size is key to success in business. But, while there are advantages to being big, they are not as great as they used to be. Among the changes brought about by the internet is the fact that companies are no longer limited by their geographical location, and so being a big player in a particular region may no longer be enough.
Accordingly, says Leinward, a lot of large companies end up with diverse portfolios where there are competing interests and where different approaches to research and development and even different strategies are required.
When the corporate landscape is viewed this way, it is perhaps less surprising that so few executives have confidence in their strategies. Indeed, the ongoing survey, which has involved more than 3,800 respondents since 2010, also found that for 66% of leaders “having too many priorities” was a major point of frustration for their organizations’ managers, while just over half admitted that communicating the strategy and obtaining buy-in for it was a significant challenge.
Moreover, Leinward is optimistic that things are changing. He reports that more and more companies are starting to “grapple with really big questions” as they realise that simply chasing market share will not producer sustainable success. The solution is all about alignment between a company’s strategy and its capabilities. Booz research suggests that “executives who do say their company’s core capabilities support their strategies are almost four times as likely to say revenue growth is above average than those whose capabilities are misaligned,” says Leinward.
Examples To Follow
Booz asked 700 senior executives from around the world and a range of industries to rate those in their sectors that best represented success. The top 15 companies that emerged were (in alphabetical order):
Philip Morris International
Procter & Gamble
Royal Dutch Shell
The executives were also asked what they felt drove these companies’ success. Among the common threads were a tendency to excel in a few functional areas rather than trying to be adequate at everything; a “clarity of identity” – knowing and focusing on the unique things a company stood for; and being “coherent”, so that everything each of the companies did fit well together and pointed in the same direction.
Leinward says: “Interestingly, the companies that in-the-know executives respect the most and feel are most successful do not stand out because of their assets or scale. They stand out because they have learned how to be truly excellent at a few things that matter to customers – a few distinctive capabilities.”
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