Majority of firms 'lack coherence'
Dubai, March 8, 2011
A majority of company executives believe their companies lack “coherence” and struggle to set a clear and differentiating strategy, said a recent survey by Booz & Company.
Over 64 per cent of the executives said their biggest frustration factor was “having too many conflicting priorities,” according to the survey by the leading global management consulting firm which covered more than 1,800 executives, of which 120 were from Middle East-based companies.
The executives said they were pulled in too many directions and that their companies capabilities did not support their strategy, it added.
'They struggle with setting a clear and differentiating strategy, ensuring that day-to-day decisions are in line with their strategy and allocating resources in a way that supports the strategy, the survey said.
The research also showed that companies with more “coherence” – where executives claim that strategy, capabilities and product offerings are in synch – performed better.
“The survey results tell us that deciding on priorities is a huge issue for companies – and that actually linking priorities to decisions is a hurdle that few companies get past,' remarked Paul Leinwand, co-author of the just-released book 'The Essential Advantage: How to Win with a Capabilities-Driven Strategy.'
'We see this ‘incoherent’ operating environment across industries and geographies, among all types of companies. It’s draining – and forcing companies to pay a significant penalty. We call it the incoherence penalty,' he added.
“Respondents from Middle-Eastern companies share those challenges,” said Ahmed Youssef, partner with Booz & Company.
“For 63 per cent of them ensuring that day-to-day decisions are in line with their strategy is a significant challenge. That’s a higher percentage than for any other region in the world,” he pointed out.
According to Youssef, the root of the problem was that too many companies grab too hastily for what seems like the next answer to growth.
'They don’t have a solid framework to decide which set of opportunities will lead to sustainable success. They end up stretched thin, trying to play in too many disparate markets,' he added.
Interestingly, majority of the executives (52 per cent) feel that their company’s strategy will not lead to success, while only 21 per cent say their company has a right to win in all the markets in which it competes.
Most executives (81 per cent) say growth initiatives lead to waste, at least some of the time, the survey added.
The vast majority (82 per cent) say functional departments in their companies get competing demands from different business units.
'The winners, 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 it does best and how it creates value – and focus investment on the capabilities that matter,' said Booz & Company managing director and co-author Cesare Mainardi.
'Growth then follows as a consequence of the strategy rather than as a set of separate and often unsuccessful initiatives,' he added.
The survey confirmed that only a few executives find themselves in that kind of 'coherent' environment:
A significant number of executives (43 per cent) say their company’s strategy does not fundamentally differentiate the company in the market, while nearly half of executives say their company has no list of strategic priorities.
“There’s clearly a problem with how a lot of companies set strategies. We passionately believe companies must choose what they will be excellent at – what they will do rather than just what they sell. The survey results, however, suggest that most companies take a somewhat ‘incoherent’ approach,” said Leinwand.
'It’s not surprising that the fast economic growth in the Middle East accentuates the problem,' said Youssef.
'The percentage of respondents (24 per cent) indicating that their philosophy about strategy is to choose an attractive market and then figure out how to be successful in it – independent on their company’s capabilities – is no where as high as for companies headquartered in the Middle-East (35 per cent), he added.
Only 43 per cent 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 survey stated.
“Companies succeed when they have a well-defined set of differentiated capabilities that connect to their chosen way of competing and their portfolio of products and services. Unfortunately, few companies have these elements in what we would describe as a ‘coherent’ strategy, and therefore don’t have a right to win in their markets,” Leinwand said.