Read the file in this module called ‘The Economist – Why Good Strategies Fail’.? (attached) Select one topic or data point from that file, conduct some exter
Read the file in this module called "The Economist – Why Good Strategies Fail". (attached)
Select one topic or data point from that file, conduct some external research on that topic, and summarize your findings.
Cite your source(s).
A report from the Economist Intelligence Unit
Sponsored by
Why good strategies fail Lessons for the C-suite
© The Economist Intelligence Unit Limited 20131
Why good strategies fail Lessons for the C-suite
About the report 2
Executive summary 3
Introduction: “Are we doing what we said we would?” 5
Finding the right level of C-suite engagement 8
Closing the loop of strategy formulation and implementation 11
Looking beyond the C-suite: skills and processes 13
Conclusion 16
Appendix: survey results 17
Contents
1
2
3
4
5
© The Economist Intelligence Unit Limited 20132
Why good strategies fail Lessons for the C-suite
About the report
The best-laid strategies of any organisation are useless without proper implementation. This is far from straightforward, however, as corporate strategy is by its nature conceptual and often complex. Why good strategies fail: lessons for the C-suite, an Economist Intelligence Unit report, sponsored by the Project Management Institute (PMI), addresses how C-level executives engage in the implementation of strategies. It also explores the barriers that impede the integration of strategic initiatives into business operations and results.
The report draws on two main sources for its research and fi ndings: l A survey, conducted in March 2013, of 587
senior executives globally. Fifty-two percent of respondents are C-level executives; the remainder hail from senior management. Responses come from a wide range of regions: 30% each from both North America and Asia- Pacifi c, 21% from Western Europe, and the remainder from the Middle East, Africa, Latin America and Eastern Europe. Fifty-eight percent of participants work for companies with more than US$1bn in annual revenue, 25% for businesses with more than US$10bn.
l A series of in-depth interviews with senior executives and academics. We thank them for their valuable insights.
Interviewees
Jeff Austin, vice-president strategy planning, DuPont Pioneer
Michael Astrue, former US commissioner for Social Security
Peter Greenwood, group executive director— strategy, CLP Group
Bali Padda, chief operating offi cer, LEGO Group
Roland Pan, director of strategy, Skype
Robert Tartaglia, managing director, managed operations and services—America, Allianz
Lawrence Hrebiniak, professor emeritus, department of management, The Wharton School of the University of Pennsylvania
© The Economist Intelligence Unit Limited 20133
Why good strategies fail Lessons for the C-suite
Strategy execution has always been the essential complement of strategy formulation. In an intensely competitive business environment and with the increasing speed of technology-enabled change, the importance of strategy implementation has increased exponentially. Roland Pan, director of strategy for Skype, a voice- over-Internet telephony service provider, wonders whether “it is possible to have superior insights in a world where information is so open or to presage the process when the world is moving so fast.” Companies will not necessarily differentiate themselves by their ability to see how markets are moving; they will set themselves apart by carrying out the necessary strategic response as quickly as possible.
This Economist Intelligence Unit study, sponsored by the Project Management Institute (PMI), examines strategy execution with particular emphasis on the role of those with ultimate responsibility for the company—the C-suite.
Key fi ndings of the report include the following:
l Senior executives recognise the importance of strategy implementation, but a majority admit that their companies fall short. Eighty- eight percent of survey respondents say executing strategic initiatives1 successfully will be “essential” or “very important” for their organisations’ competitiveness over the next three years. Yet 61% of respondents acknowledge that their fi rms often struggle to
bridge the gap between strategy formulation and its day-to-day implementation. Moreover, in the last three years an average of just 56% of strategic initiatives have been successful. Such poor implementation means that a company’s stated strategy fails to shape what happens in practice: only a small minority of respondents say that their business model is extremely well aligned with strategy. Not surprisingly, companies that are poorly aligned with strategy also report weaker fi nancial results than their peers.
l C-suite executives are often missing in action. Survey respondents say the number-one reason for the success of strategic initiatives at their organisation is leadership buy-in and support. Nevertheless, only half of those surveyed say that strategy implementation as a whole receives appropriate C-suite attention. Moreover, 28% admit that individual projects to implement strategy do not typically obtain the necessary senior-level sponsorship. Such a lapse in leadership inevitably decreases the ability to implement strategy.
l Rather than micromanaging, C-suite executives should identify and focus on the key initiatives and projects that are strategically relevant. Although the details of how to implement strategy vary signifi cantly by company, survey respondents identify several
Executive summary
1. In this study, a strategic initiative is defi ned as a project, portfolio of projects, other discrete programme or series of actions undertaken to implement or continue the execution of a strategy, or that is otherwise essential for the successful implementation or execution of a strategy. This includes some—usually high- priority—projects, but does not entail the entire project portfolio.
© The Economist Intelligence Unit Limited 20134
Why good strategies fail Lessons for the C-suite
areas where C-suite efforts are valuable. These include general oversight, leading and supporting strategic initiatives, and communication. Top executives should also pay special attention to the key initiatives and projects that are most important to corporate strategy. This entails involving corporate leaders in high-level decisions on the selection and prioritisation of such initiatives as well as the allocation of resources to them—the core of strong project-portfolio management. Yet interviewees for the report warn that the C-suite needs to lead a structured process rather than micro-manage execution.
l A majority of companies either lack the skills or fail to deploy the personnel needed for strategy implementation. Only 41% of respondents say their companies provide suffi ciently skilled personnel to implement high- priority strategic initiatives. Moreover, just 18% say that the hiring of people with the necessary business skills or leadership talent to drive strategy implementation is a very high priority at their fi rms, and a mere 11% say the same of developing those skills among existing
executives. Executives may thus be neglecting the low-hanging fruit: companies that typically provide both types of human capital succeeded in 62% of such initiatives over the past year, compared with 53% for other businesses. The survey data also indicate a correlation between companies that do better at implementation and those that focus more heavily on obtaining the requisite business and leadership skills.
l Success results from working at implementation in a variety of ways, but the fi nancial rewards justify the effort. There is no silver bullet to achieve better strategic implementation, but companies that rate themselves highest in this area share a range of characteristics. They report greater levels of C- suite involvement, better feedback mechanisms, more resourcing—particularly providing human resources—for initiatives and more-robust processes. Their efforts produce strong results: 65% of these companies also report much better fi nancial performance than their peers, compared with just 18% of other companies that say the same.
© The Economist Intelligence Unit Limited 20135
Why good strategies fail Lessons for the C-suite
In an increasingly uncertain business environment, strategy matters more than ever. Yet as Bali Padda, chief operating offi cer (COO) of the LEGO Group, the toymaker headquartered in Denmark, puts it, “Strategy is only as good as the execution behind it.” Indeed, formulation and execution are intrinsically linked. As John Kotter, former professor at Harvard Business School and noted expert on innovation, says, “Strategy should be viewed as a dynamic force that constantly seeks opportunities, identifi es initiatives that will capitalise on them, and completes those initiatives swiftly and effi ciently.”2 Thus, those responsible for strategy—the C-suite—need to ensure implementation. This study looks at how well they are contributing in this area and where they need to do more (see chart below).
In a global survey conducted for this report,
88% of respondents say that executing strategic initiatives successfully will be “essential” or “very important” for their organisations’ competitiveness over the next three years. Forty-fi ve percent of respondents describe execution as “essential” compared with just 40% who say the same about creating appropriate strategies. This suggests that they see implementation as marginally the more important of the two.
Although such a view may seem counterintuitive, Lawrence Hrebiniak, emeritus professor at the University of Pennsylvania’s Wharton School and author of Making Strategy Work, supports it. He notes that “implementation is more important than strategy formulation. It should not be a question of developing a strategy and hoping it works, but of developing a strategy and following a logical plan to reach it. Creating the execution plan is diffi cult,
2. “Accelerate!”, Harvard Business Review, November 2012).
Introduction: “Are we doing what we said we would?”1
Q Essential Very
important Somewhat important
Formulating strategy appropriate for changing market conditions
Prioritising and funding the appropriate initiatives/projects
Successfully executing initiatives/projects in order to deliver strategic results
Feeding lessons from successful strategy implementation back into strategy formulation
Feeding lessons from failed strategy implementation back into strategy formulation
How important will improving the various aspects of strategy implementation be to the competitiveness of your organisation over the next three years? (% respondents)
Figures do not total 100% because “minimally important” and “don’t know” are not included. Source: Economist Intelligence Unit survey, March 2013.
40 49 9
35 51 12
45 43 10
18 54 24
27 50 19
❛❛ It should not be a question of developing a strategy and hoping it works, but of developing a strategy and following a logical plan to reach it. ❜❜ Lawrence Hrebiniak, Professor Emeritus, Department of Management, The Wharton School of the University of Pennsylvania
© The Economist Intelligence Unit Limited 20136
Why good strategies fail Lessons for the C-suite
but certainly necessary and productive.” Moreover, execution sets companies apart more than strategy formulation does because fewer corporate leaders are as skilled at it. Roland Pan of Skype notes the diffi culty in maintaining lasting strategic insights that are vastly superior to those of competitors; thus, he adds, “Other things will matter more, like execution.”
The need to focus on implementation seems self-evident. After all, unrealised aspirations do no business any good. It is noteworthy, however, because companies are surprisingly bad at executing strategy. Sixty-one percent of respondents admit that their fi rms often struggle to bridge the gap between strategy formulation and its day-to-day implementation; only 11% disagree. In addition, respondents say that on average only 56% of strategic initiatives have been successfully implemented in the last three years at their organisations. It is not surprising then that less than half (46%) say their businesses are “excellent” or even “good” at executing initiatives and projects to deliver strategic results—far worse than the 64% who rank themselves this highly at formulating strategy (see chart above). Says one survey respondent: “Strategy isn’t followed as closely as it should be. We often tend to formulate a strategy only to go in an opposite direction.”
Poor strategic implementation hinders the ability of formal strategy to affect what the company does in practice. A majority of respondents say that their companies’ activities are only somewhat aligned with their strategy
across every element of the business model. Worse, the number saying they are unaligned to some degree is greater in each case than those saying they are extremely well aligned.
This lack of alignment might merely suggest that many companies follow an emergent strategy— along the lines of the writings of Henry Mintzberg—rather than the more deliberative approach explored in the work of Michael Porter. In general, Mr Mintzberg believes that changing external conditions and experience gained during strategy implementation tend to modify a fi rm’s original intentions. The optimal strategy thus becomes clear over time as necessary adjustments are incorporated. Mr Porter treats the creation of strategy as more of an activity that precedes its implementation.
However, this potentially benign explanation for the poor alignment between strategy and actual practice at companies does not withstand closer inspection. The survey data show no correlation between a willingness to learn and adjust on the go—typical of emergent strategy—and the degree of alignment between strategy and practice. Instead the data refl ect a worrying inability for many companies to answer the central question of strategy implementation: “Are we doing what we said we would be doing?” to use the words of Jeff Austin, vice-president strategy planning at DuPont Pioneer, a US-based agricultural company.
Surprisingly, strategy implementation has received little attention. One extensive literature review indicated that, on average, only two to
Q Excellent Good Fair Somewhat
poor Formulating strategy appropriate for changing market conditions
Prioritising and funding the appropriate initiatives/projects
Successfully executing initiatives/projects in order to deliver strategic results
Feeding lessons from successful strategy implementation back into strategy formulation
Feeding lessons from failed strategy implementation back into strategy formulation
How would you rate your organisation’s success in performing the following activities over the last three years? (% respondents)
Figures do not total 100% because “don’t know” responses are not included. Source: Economist Intelligence Unit survey, March 2013.
15 49 25 9
11 44 33 10
12 34 38 14
7 33 35 21
5 28 35 22
Sixty-one percent of respondents admit that their fi rms often struggle to bridge the gap between strategy formulation and its day-to-day implementation.
© The Economist Intelligence Unit Limited 20137
Why good strategies fail Lessons for the C-suite
three articles on the topic appeared per year in recent decades across all academic journals covered in the leading scholarly indexes.3 It also receives little attention in the business press. Part of the diffi culty is that, as Peter Greenwood, group executive director-strategy at CLP, a Hong Kong- based power company, points out, “all businesses are non-typical” and therefore face distinct problems in executing their strategies. In addition, the fi eld is complex, with issues ranging from
people and culture through corporate structures to the fi t between the type of company and nature of the strategy being introduced. Framing the discussion around the role of the C-suite, as this report does, addresses those who are ultimately responsible for strategy. It also identifi es serious problems many companies face in this area, in no small part because academics are not the only ones who have not been paying attention.
Thirteen percent of respondents to the Economist Intelligence Unit survey benchmark their companies as well above average in the execution of strategy—a group we dub henceforth “best executors”. This greater ability is apparent in carrying out programmes of strategic significance: best-executing companies have successfully completed 20% more strategic initiatives than other surveyed companies in the last three years. This success is reflected in the degree to which strategy defines day-to-
day corporate practice. At over half of the best executors, strategy is well aligned with the actual business model; at other companies, this is true for only one in 16.
More strikingly, nearly two-thirds of best executors say they are “well above average” at fi nancial performance, compared with just 18% of other companies.
A wide range of behaviours set best executors apart from the pack. Each section of this report will feature a sidebar highlighting these competencies.
Introducing the “best executors” of strategy
Best executors All other respondents
Successful strategic initiatives in last three years 73% 53%
Benchmark financial performance well above average 65% 18%
Strategy well aligned with actual business model 51% 6%
3. Yang Li et al., “Making Strategy Work: A Literature Review on the Factors infl uencing Strategy Implementation”, in Pietro Mazzola and Franz Kellermanns, eds. Handbook of Research on Strategy Processes, 2010.
© The Economist Intelligence Unit Limited 20138
Why good strategies fail Lessons for the C-suite
Survey respondents report that the main reason for the success of strategic initiatives at their businesses is leadership buy-in and support. Thus, one of the most worrying fi ndings of our survey is that leading executives at a large number of companies do too little about strategy implementation. Only 50% of respondents say that strategy implementation secures the appropriate C-suite attention at their organisation. Similarly, 28% admit that individual projects or initiatives to put strategy into place do not typically receive the necessary senior-level sponsorship. At the latter companies, only 47% of strategic initiatives are successfully completed compared with 59% where such sponsorship is provided.
Michael Astrue, former US Commissioner for Social Security, says, “Commonly [in the public sector], people put strategy together from a theoretical perspective. They have not factored in practical matters such as operational complexity and budget constraints. You need to have people at the top who can integrate all those things. It is a big issue.” Professor Hrebiniak sees a similar problem in the private sector. He notes that corporate leaders “focus on planning but, when it comes to execution, people assume it will happen. They think, ‘The strategy is good, so of course it will work.’”
Strategy is too often a fi re-and-forget activity for the C-suite. When asked—without being given
Finding the right level of C-suite engagement 2
Q
Leadership buy-in and support
Skilled implementation
A good fit between specific initiative and general strategy
Good planning
The initiative obtains skilled personnel
Good communication
Ability to manage organisational change
The initiative receives sufficient funding
When strategic initiatives do succeed at your organisation, what are the main reasons? Please select up to three. (% respondents)
Figures do not total 100% because “don’t knows” and NA are not listed. Source: Economist Intelligence Unit survey, March 2013.
51
39
37
32
28
25
25
24
❛❛ Commonly, people put strategy together from a theoretical perspective. They have not factored in practical matters such as operational complexity and budget constraints. You need to have people at the top who can integrate all these things. ❜❜ Michael Astrue, former US Commissioner for Social Security
© The Economist Intelligence Unit Limited 20139
Why good strategies fail Lessons for the C-suite
suggested options—the single most important change that would improve alignment between strategy and business activities, over one-fi fth of respondents mention a change in C-suite or leadership activity. However, defi ning the precise roles where top executives might make the biggest difference is not an exact science. Mr Austin says, “There is no single answer. It has to be calibrated within the strategic context of each company.”
Yet interviewees point consistently to a number of areas in which the attention and activity of the C-suite are essential for successful strategy execution:
General oversight and being perceived as leading the effort. Professor Hrebiniak says, “Because implementation is in large part strategic, the C-suite has to be involved. Top managers must defi ne strategy, key projects related to it, and then the structure and process of critical implementation decisions and actions. They must deal with the demands of strategy and their impact on organisational structure, co-ordination requirements, talent and the capabilities required for successful strategy execution. The C-suite clearly is essential to making strategy work.”
Such leadership involves active support for change, particularly by communicating its importance to the rest of the organisation. Robert Tartaglia, managing director, managed operations and services—America, Allianz, an insurance company, says a key role for a C-suite executive is “being the very visible person who stands in front of an audience and explains the importance of the strategy, and thereby being seen as drivers and individuals supportive of the strategy.”
Picking your battles. Mr Padda explains that executives at LEGO are consciously more “hands on” for those projects that address what are seen as the key challenges. Mr Austin agrees, because of both the importance of these projects themselves and the message such engagement sends: “The senior team needs to be involved in the critical few initiatives that have been identifi ed as top priority. This includes ensuring clear accountability and
transparency, so the whole organisation understands the priority.”
The very choice of key initiatives with which to be involved inevitably requires C-suite executives to prioritise strategic projects. For Mr Padda, prioritisation is an integral part of even having a strategy: “Everybody wants to be world class at everything, so if the strategy is not making some clear fundamental choices but is broad brush and fl uffy, that is where execution will fail.”
Prioritisation and resource allocation are inextricably linked. Mr Austin says, “Where you have resources allocated really says what you have prioritised. Ensuring that the allocation process is aligned with strategic intent is critical. To be effective, we need to ask ‘what our critical few initiatives are’”, so that resources are correctly focused on them.
Yet C-suite involvement in strategy execution poses challenges as well:
Micromanagement. Interviewees warn against corporate leaders becoming active in all aspects of strategic initiatives. Not only are they too busy, they could inadvertently cause damage. Mr Tartaglia believes that, in larger, more complex, fi rms, “The C-suite should not be involved in day- to-day aspects of these projects, other than providing top-down support. What needs to happen at the operational level is so close to the business that if C-suite executives get involved and they don’t have a very detailed understanding of operations, they might make wrong decisions.”
Exercising power based on personal agendas. Mr Pan says, “Strategy is intensely personality- and relationship-driven. The way you formulate and go about implementing strategy actually depends on the actors involved more than most people would believe.” This can be benefi cial when people complement each other, and may be inevitable in an organisation, but it brings its own dangers: 57% of survey respondents agree that the adoption of any specifi c strategic initiative or project at their
❛❛ Where you have resources allocated really says what you have prioritised. Ensuring that the allocation process is aligned with strategic intent is critical. ❜❜ Jeff Austin, Vice-president Strategy Planning, DuPont Pioneer
© The Economist Intelligence Unit Limited 201310
Why good strategies fail Lessons for the C-suite
organisation depends more on the infl uence of the most senior executive supporting it than an assessment of its value overall. Says Mr Greenwood: “No one person should monopolise strategy and decisions of implementation. Organisations need to have effective checks and balances.”
Although the risks of excessive or inappropriate participation in strategy implementation are real, the survey reveals that the bigger problem for companies remains under-involvement of the C-suite. Only 65% of respondents say that these executives take an active or lead role in general oversight for individual, high-profi le projects, and
only 62% say the C-suite sets the broad scope of the project. More striking, less than half (47%) of respondents report C-suite involvement in communicating the importance of initiatives.
Corporate-level executives are actively involved at only 50-60% of companies in initiative selection, prioritisation and resource allocation across the portfolio of strategic initiatives and projects. A greater level of involvement would not only reduce the number of companies experiencing insuffi cient C-suite attention in this area, it would also help with strategy formulation, as discussed in the next section.
At 81% of best executors, strategy implementation secures the C-suite attention it merits (compared with 45% for other organisations). Moreover, at best-executing
companies, top executives take a more active role in every element of project implementation, and they recognise that not every role is important enough for their participation.
Best executors see much higher C-suite engagement
For individual, high-priority strategic initiatives at your organisation, in which of the following would a C-level executive typically take an active lead or role?
Best executors All other respondents
General oversight 72% 63%
Setting the broad scope 68% 61%
Communicating its importance to the organisation 56% 46%
Creating the project team 55% 40%
Assessing success 48% 37%
Securing resources for the initiative 39% 22%
Implementing, and tracking the results 35% 22%
Deciding upon and making necessary adjustments to the initiative as it proceeds
32% 29%
Feeding insights gained from the initiative into the strategy-making/implementation process
29% 13%
❛❛ Strategy is intensely personality- and relationship- driven. The way you formulate and go about implementing strategy actually depends on the actors involved more than most people would believe. ❜❜ Roland Pan, Director of Strategy, Skype
© The Economist Intelligence Unit Limited 201311
Why good strategies fail Lessons for the C-suite
Closing the loop of strategy formulation and implementation 3
The insuffi cient level of C-suite engagement in strategy execution may refl ect a deeper problem: most organisations don’t think that such activity is very important in practice. Only 17% of respondents say that, in their companies, implementation is seen as strategic. Instead, at 56% of fi rms, it is considered to be an operational task. Mr Austin says, “Ensuring a tight linkage between strategy development and how that translates operationally is a challenge. But in effective companies they are integrated in a holistic way. When am I doing strategy and when am I implementing is not really the question. People should see these steps as part of a continuum.”
Too often, though, companies do not see the continuum. A consideration of feedback mechanisms between the strategy execution and formulation illustrates the problem. Survey respondents recognise the value of learning from experience: 72% say that feeding lessons from
successful implementation back into strategy formulation will be “essential” or “very important” for corporate competitiveness over the next three years. Even more (77%) say the same about lessons from failed execution. In a recent strategy review at LEGO, Mr Padda notes, the natural starting point was to ask “what worked well and why [in the past], and to bring those lessons into the new process. That was key for us.”
Of course, recognition of the importance of an activity does not mean it is well executed. Only 40% of survey respondents say their companies are “good” or “excellent” at feeding back lessons from successful implementation into strategic planning, and just 33% when it comes to unsuccessful ones. Worse, 33% have no method for doing so, and most companies rely on informal ones—such as an overlap between those who engage in formulation and those who take on implementation.
This “is something companies are not always
Q
Those involved in outlining the steps of a strategic initiative but not high-level strategy planning are also closely involved in its implementation
Those involved in setting high-level strategy are also closely involved in its implementation
Strategic initiatives are assessed upon completion and a list of lessons learned is communicated to those who set high-level strategy
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