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How the recession has affected strategy implementation

3 min read

Modern Money

The economic downturn has forced company executives to exercise greater caution when pursuing strategic initiatives, but it has not dimmed their faith in the belief that bold, well-executed initiatives can bring success, says a recent study from FTI Consulting. In the study, 180 senior executives were surveyed about their companies’ strategic plans. Here are some key findings from the study:

  • Defensive strategies were far more successful than offensive ones during the recession. In the survey, 93% of respondents said that downsizing and re-engineering initiatives were the most successful in the past five years — the highest among strategy initiatives — while acquisitions and divestitures had the lowest rate, at 63%.

    When considering the most strategic initiatives for 2010 — in terms of which have the most potential to affect a company’s business model or the market they operate in — respondents considered new market entry and acquisitions and divestitures as most strategic, while downsizing and re-engineering were considered one of the least strategic.

    Further demonstrating executives’ optimism is the fact that new market entries and new product launches were cited as the two most common strategy initiatives in 2010. In what could be a sign that executives’ optimism is not unfounded, the success rates across every type of strategy initiative increased in 2010 from 2009.

  • Communication is the most critical factor determining the success or failure of a strategy initiative. Survey results indicate that communications is the area that has the greatest need for improvement. More than 40% of respondents said improved communication was the most important change they were pursuing in the coming year. More than 90% of respondents who identified as CEOs said communication was critical to their initiatives.

  • A CEO’s job is becoming both more important and more difficult. Nearly 70% of respondents say that the CEO’s role as a thought leader is more critical now than it was two years ago. The report also notes that less available funding, more pressure from clients and investors, and greater uncertainty in the regulatory environment have decreased the margin for error when it comes to initiating strategies. As a result, fewer initiatives are pursued, but are done so with greater care.
  • Strategies fail because individuals essential to its implementation either do not understand it, or are not convinced of its usefulness. A solid understanding, commitment and follow-through from key team members were the most important factors determining whether a strategy would succeed, according to 35% of respondents. The only factor that executives considered more important was whether the strategy itself was the right one. Improving communication was identified as key to increasing understanding and commitment from management.
  • Companies do, occasionally, pursue bad strategies. Respondents said 15% of strategies failed because they were wrong for the company.