If your organization struggles to keep up in an increasingly competitive market, it’s not alone. Successfully executing transformative strategies is a challenge for many businesses.
The benefits of effective strategy execution are immense. According to a PwC survey, companies that invest more time and effort into strategy execution are three times more likely to report above-average growth and twice as likely to report above-average profits than those that don’t.
However, strategic plans don’t always succeed.
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DOWNLOAD NOWWhy Do Strategic Plans Fail?
Companies’ strategic plans often fail for the same reason: ineffective strategy execution. According to Harvard Business School Professor Robert Kaplan’s book, The Balanced Scorecard: Translating Strategy into Action, 90 percent of organizations fail to execute their strategies successfully.
“Studies have shown that execution is continually rated as one of the most significant challenges by executives,” says HBS Professor Robert Simons, who teaches the online course Strategy Execution.
For example, consider technology company IBM’s strategy execution mistakes. When personal computing became popular in the early 2000s, IBM managers continued to allocate resources to the business’s archaic aspects, like mainframes. As a result, IBM lost its industry standing once competitors began offering well-built, affordable PCs to consumers.
“There are many stories like this,” Simons says in Strategy Execution. “In each, we find a business strategy that was well formulated but poorly executed. And while you can find lots of advice on how to devise better strategies, there's very little guidance on how to execute those strategies.”
To help understand how to manage and implement strategy more effectively, here are five common reasons strategy execution fails.
5 Reasons Strategy Execution Fails
1. Ineffective Resource Allocation
Resources are a powerful tool and provide the support to achieve strategic goals; businesses that fail to allocate them effectively rarely succeed.
For example, Circuit City was a successful electronics company that faced financial challenges caused by poor resource allocation. Instead of selling off risky business acquisitions, the company eliminated its most valuable resource: experienced sales staff. That decision proved detrimental when the company lost its competitive edge in providing quality customer service and industry knowledge.
One way to avoid similar outcomes is by designing high-performing jobs and understanding what roles require more resources and funding.
“Job design is a critical part of strategy execution,” Simons says in Strategy Execution. “If individuals don't have the resources they need and aren’t accountable in the right way, they won’t be able to work to their potential.”
To ensure your organization’s jobs align with its business strategy, Simons recommends using the Job Design Optimization Tool (JDOT), which enables you to design or test any job by analyzing its balance of demands and resources.
The JDOT helps determine the following aspects of job design:
- Span of control: The resources for which you’re given decision rights and held accountable for performance.
- Span of accountability: The range of trade-offs affecting the performance measures used to evaluate employees—defined in both financial and non-financial terms.
- Span of influence: How many people you must reach out to when attempting to influence others’ work.
- Span of support: The support you can expect from those in other organizational units.
In terms of resource allocation, be mindful of who on your team needs wider spans of control. Those employees should directly support your business objectives and aid in strategy execution.
2. Ineffective Risk Management
One of the most common reasons strategy execution fails is ineffective risk management. While external factors like emerging disruptive technologies and evolving customer needs can negatively impact business strategy, many companies forget to mitigate internal risks.
Consider the downfall of energy company Enron. Due to a lack of internal monitoring, the company misled investors and stakeholders about its financial health for years through fraudulent accounting practices.
Effective oversight can help prevent such situations, but leaders are often expected to monitor too many aspects of their businesses simultaneously.
One of the best ways to prevent what Simons calls “bad employee behavior” is through internal controls—policies and procedures designed to ensure reliable accounting information and safeguard company assets.
“Managers use internal controls to limit the opportunities employees have to expose the business to risk,” Simons says in Strategy Execution.
There are three types of internal controls:
- Structural safeguards: Ensure a clear definition of authority for individuals who handle assets and record accounting transactions (for example, segregation of duties).
- Systems safeguards: Assure procedures for processing transactions and management reports are adequate and timely (for example, database security).
- Staff safeguards: Make sure accounting and transaction processing staff have the right levels of expertise, training, and resources (for example, job rotation).
Leveraging internal controls like these can help mitigate internal risks that could hurt your strategy execution.
“There's a lot of opportunities if we start thinking about internal controls and what it's trying to prevent,” HBS Professor Eugene Soltes says in Strategy Execution.
In addition to mitigating financial risks, internal controls can influence your company’s long-term operational and financial performance by safeguarding strategy execution.
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3. Vague Strategic Goals
A common mistake when implementing strategy is underestimating the power of business goals and objectives.
According to a study by The Economist Intelligence Unit, 90 percent of senior executives say they failed to reach all their strategic goals because of poor implementation.
One example of a company impacted by poor strategy implementation is Target. Although a successful retail company, it had difficulty expanding into the Canadian market due to management’s inability to effectively communicate strategic goals, operational procedures, and differences in customer expectations to Canadian employees. As a result, Target had to close all Canadian operations.
You can help avoid such outcomes by using tools like the balanced scorecard.
“The balanced scorecard combines the traditional financial perspective with additional perspectives that focus on customers, internal business processes, and learning and development,” Simons says in Strategy Execution. “These additional perspectives help businesses measure all the activities essential to creating value.”
When paired with a strategy map—an outline of the cause-and-effect relationships that underpin your strategy—a balanced scorecard provides a roadmap for understanding the relationship between your business’s goals, measurements, and value creation.
Remember to define and outline your goals and objectives before implementing your strategy to ensure consistency and alignment throughout the execution process.
4. Lack of Organizational Support
No matter how great your strategic initiatives are, you can’t implement them alone. Successful strategy execution requires the support of employees, stakeholders, and customers.
One situation that exemplifies why it’s vital to gain employee buy-in before implementing high-level changes is JCPenny’s failed 2011 rebranding strategy. Under new leadership, the company tried to implement a strategy focused on modernizing stores and pricing models, which was met with internal resistance. Longtime staff and sales associates felt disconnected from the new direction. Many employees also didn’t understand the pricing strategy and weren’t adequately trained in the company’s latest sales tactics.
One of the most effective ways to earn your team’s support is by communicating your company’s core values—your business’s larger purpose that inspires and guides employee behavior—and how it aligns with your strategy.
“You may think of them as little more than window dressing or ticking a box without much real impact on the business,” Simons says Strategy Execution. “But I've learned that the best companies—the ones that are most competitive and lead their industries decade after decade—put enormous emphasis on their core values and beliefs.”
Examples of core values include:
- Innovation
- Diversity and inclusion
- Sustainability
By aligning strategy with purpose, employees won’t just support your strategic initiatives but be engaged in their work.
Related: 6 Strategies for Engaging Your Employees
5. Imbalance of Innovation and Control
Innovation is essential to your organization’s long-term success. However, it’s critical that innovative products and services don’t hinder your business strategy’s execution.
For example, Uber has historically struggled with balancing innovation and internal controls. While the ride-hailing company has transformed the transportation industry, its need for innovation has led to several instances of misconduct due to insufficient internal controls. In response to public criticism and regulatory scrutiny, Uber has taken steps to address those issues and placed greater restrictions on what employees should and shouldn’t do.
You can help balance innovation and control by setting strategic boundaries, which define your business’s desired market position by identifying opportunities it should avoid and pursue.
You might be overwhelmed by such decisions. In choosing what to do and not do, you might worry about stalling innovation throughout your organization. However, restrictions are more guidelines than constraints. Instead, they should ensure innovation aligns with your business strategy’s direction.
How to Succeed in Strategy Execution
Strategy execution doesn’t need to be intimidating. While many businesses have failed to execute their strategic initiatives, you can help ensure yours succeed by developing strategy execution skills.
By taking an online strategy course, you can build the knowledge and skills to reach your strategic goals. Through an interactive learning experience, Strategy Execution allows you to learn from real-world business examples to better understand the strengths and weaknesses of your organization’s strategy execution approach.
Want to discover more tools you can use to implement strategy? Explore Strategy Execution—one of our online strategy courses—and download our free strategy e-book to continue learning about how to avoid common execution mistakes.
