This post is by Paul Leinwand, a partner at the consulting firm Booz & Co. and Cesare Mainardi, the managing director of Booz & Co.’s North American business. They are co-authors of “The Essential Advantage: How to Win with a Capabilities-Driven Strategy.”
We recently surveyed 1,800 top executives on the subject of strategy and found a striking level of frustration. The majority of executives in all industries admitted that their companies lack “coherence.” They struggle with setting a clear and differentiating strategy, working through a surfeit of conflicting priorities, ensuring day-to-day decisions are in line with their strategy and allocating resources in a way that supports the strategy.
More to the point, executives say that deciding on priorities and linking decisions to those priorities is a big hurdle at their firms. Our research shows that this problem is costly and draining: It forces companies to pay a significant penalty. We call it the “incoherence” penalty.
To put this problem into high relief, here is some of what we found:
- Most executives – 52% – say they don’t feel their company’s strategy will lead to success.
- Two out of three executives confess that their companies’ capabilities don’t fully support their strategy.
- 64% of executives say their biggest frustration is having too many conflicting priorities.
- The vast majority of executives– 81% – say growth initiatives at their companies lead to waste, at least some of the time.
- Most companies – 54% – say their company’s capabilities do not reinforce each other.
- The majority of executives – 56% – say that ensuring that day-to-day decisions are in line with strategy is a significant challenge; the same percentage reports significant problems with allocating resources in a way that supports the strategy.
So, what can you do to reduce the frustration, wheel spinning and daily struggle — and, at the same time, up the ante on performance?
The answer begins with getting a much firmer handle on what your company does really well – perhaps better than anyone else — and beginning to use that as a filter for making decisions, thinking about growth, considering mergers and acquisitions, budgeting and hiring. This sounds simple, even elementary, but it’s actually not.
The great majority of companies do not approach things this way. Their leaders and business heads are so preoccupied with the next answer to growth that they’re trying to play in too many disparate markets. They pursue multiple strategies and directions that actually undermine rather than reinforce each other. As a result, they don’t really win in any market, and the cycle of frustration continues while the pressure actually increases.
Winners, on the other hand, define the fundamental identity of the company by developing a clear idea of what it does best and how it creates value for customers. They then hone these distinctive capabilities – ones competitors can’t match – that will enable them to deliver competitive advantage. Procter & Gamble, Wal-Mart and Coca Cola are examples of companies that go about business in this coherent way.
So, the best route to improved performance and reduced frustration is recognizing that the true source of competitive advantage at your company is what it does particularly well (and how it does it), not what it sells. Once you’ve recognized that, you can begin to hire, invest, innovate, develop new initiatives, launch new products and enter new markets that reinforce and deepen this advantage and these differentiating capabilities. Use this filter ruthlessly, even obsessively. That will help you resist the temptation to jump at inappropriate market opportunities and dilute the company’s strength – and your effectiveness – by stretching it thin, in markets where the company doesn’t have the capabilities to win.
A good example of the kind of coherent, “capabilities-driven” behavior that leads to sustainable growth and a stronger organization is the way Amazon.com goes about acquisitions. It all happens through the filter of what will make the company even better at what it’s already great at – and has nothing to do with chasing random, new or adjacent markets.
Among Amazon’s acquisitions that reinforce what the company is great at:
- Audible.com, a producer of audio books, helped Amazon create a digital audio-reading feature for the Kindle.
- Joyo, the number one online bookstore in China, helped Amazon build capabilities for logistics, distribution and processing payments in China.
- Dpreview, a digital photography review site, gave Amazon the capabilities in managing user-generated commentary, making Amazon the world’s richest forum of user-generated commentary on phones, PDAs and computer-based devices.
- Zappos, the online shoe and apparel store, gave Amazon direct in-person customer support capabilities, which complemented Amazon’s automated capabilities.
The bottom line here: Don’t just know the market, know thyself really well — and double down on the best, most distinctive parts.
Image credit, WillSelarep, via iStockPhoto.com