Is your small business struggling to set a clear growth strategy and prioritize all the things you need to do to execute that strategy? If it’s any comfort, you’re not alone. In a recent survey by Booz & Company, the majority of nearly 2,000 executives surveyed admitted that their companies lack “coherence.” In other words, they not only struggle with setting a clear strategy, but they also face difficulty ensuring that day-to-day decisions are in line with their strategy and allocating resources in a way that supports the strategy.
Coherence is important, Booz & Company found, because companies with greater “coherence” -- that is, with strategy, capabilities and product offerings in synch -- performed better overall, whatever their industry.
“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,” said Paul Leinwand, co-author of The Essential Advantage: How to Win With a Capabilities-Driven Strategy (Harvard Business Review Press). “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 [that we call] the incoherence penalty.”
What are some of the issues facing companies?
- Nearly half of executives (49 percent) admitted their company doesn’t have a list of strategic priorities.
- While most executives say their company has a clearly stated set of capabilities, only one-third of executives say those capabilities support the company’s strategy and the way it creates value.
- Sixty-four percent say their company has too many conflicting priorities.
“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,” said said Booz & Company Managing Director and co-author Cesare Mainardi. “They end up stretched thin, trying to play in too many disparate markets.”
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Does this sound familiar? It’s all too easy for a small business (or, as the survey shows, any size business) to fall into this trap. Let’s look at how companies surveyed choose their strategies:
- Most executives (57 percent) say their company creates strategy by either “pursuing a broad portfolio of strategic options and spreading the risks” or by “choosing an attractive market and figuring out how to be successful in it.”
- Fewer than half (43 percent) say their company’s strategy starts from the inside -- looking at what the company excels at and finding markets that capitalize on those capabilities.
In contrast, Mainardi said, coherent companies follow a clear 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. Growth then follows as a consequence of the strategy, rather than as a set of separate initiatives.”
The survey also showed that coherence has its rewards:
- Executives whose companies have very few (one to three) strategic priorities are the most likely to say their companies have above-average profitability and revenue growth (compared to those having more strategic priorities or no priority list at all).
- Executives who say their company’s capabilities support its strategy are most likely to have above-average profitability and revenue growth.
Selecting a strategy that builds on your strength and remaining focused on that strategy instead of chasing after new opportunities is difficult for a small business at the best of times -- but especially so in today’s economy, when the temptation to grasp at any chance for profit is great. However, this survey reinforces how important strategy is to your business’s long-term success.
You can view the full survey results (and take a short test to determine how “coherent” your business is) at the Booz & Company site.