Companies that have a long term business strategy still outperform companies that don’t, research by A.T. Kearney shows. Developing this strategy, however, has become harder in recent years, for which the reason can be found in the interface between the formulation and deployment of strategies. According to the consulting firm, a successful long term business strategy should be formulated as a direction for the organisation to follow, backed up by strong leadership.
A dynamic world
The research by strategy consulting firm A.T. Kearney, entitled ‘The State of Strategy Today’*, finds that the environmental conditions in which businesses are developing strategies for their future are themselves undergoing rapid change. The environment in which businesses must perform their essential function is being disrupted by a variety of macro and micro factors, from global credit turbulence to pieces of disruptive technology transforming traditional market places.
Against this backdrop, 62% of CEOs surveyed for the report note that developing a long term strategy has become considerably more difficult over the past decade. Three-quarters (74%) say complexity forces them to spend more time and effort on strategy formulation. However, despite these increased efforts, 46% of strategies fail to meet expectations.
A natural response to an environment that is both hostile and rapidly changing is to be adaptable and agile. By setting a business on a path towards being able to quickly grasp the way to change, strategy and planning is no longer necessary. This is reflected in the survey, with more than 80% of global executives considering agility as important, or more important, than strategy, when it comes to securing a company’s future success. And only a slim 19% believe a strategy-induced competitive advantage is still possible.
Long term strategy
The research highlights that while many C-suits are questioning the relevance of long term strategy in the present environment, companies that have longer term strategies of 5+ years still outperform (85% successful) those that have short term (53% successful) or ad hoc (46% successful) strategic outlooks.
According to the consulting firm, the ‘agility as a substitute for strategy’ notion is flawed. So, what is causing C-suits and management to drop a key aspect of running a successful business? The answer seems to be in the interface between formulation and deployment of strategies. Of the respondents, 6% blames deployment and 7% formulation. It should be noted, however, that deployment bears more fault in general than formulation, with 29% placing the blame more in deployment than formulation (19%).
Strategizing strategy: formulation
One of the key places in which knowledge, experience and preparation are needed, is in the formulation of strategies. When asked about their strategy formulation failures, most executives complain that it is an insufficiently inspired, unrealistic, impractical, and detached process:
- Lack of understanding of future trends (88%)
- Little understanding of internal capabilities (87%)
- Too much top-down approach (84%)
- Not enough logical thinking (84%)
Strategizing strategy: deployment
So what’s the problem on the deployment side? A key finding is that the interface between formulation and deployment is a key concern, with strategies failing to integrate planning with changes in practice of those involved:
- Lack of internal understanding of the strategy (90%)
- Lack of internal capabilities to execute the strategy (90%)
- Lack of ownership (86%)
A.T. Kearney’s key conclusion suggest that a successful and inclusive strategy requires top-down leadership, with top management formulating the ideas, ground rules, organisational teams, and direction that are critical for middle and lower management to deploy. Strategy, at its best, becomes less of a decision and more of a direction to inspire the organisation to follow—not once, but on an on-going basis. As one CEO says: “Strategy and leadership go hand in hand, you can't have one without the other.”
* Which reached out to over 2,000 executives, business leaders, and heads of strategy functions to discuss their thoughts on the state of strategy today.