Why Do Many Companies Fail To Have A Strategy?

Throughout history and even in today’s volatile and uncertain world, we have seen corporations that have dominated for decades be blindsided by startups with radical business models. On the other hand, young ventures with vast amounts of raised capital collapse when they can’t figure out how to fend off imitators.

If strategy is that important to the long-term survival of all businesses, why do many companies fail to have a strategy or avoid making strategic choices?

The underlying cause can be that a company has a misguided view of competition, overconfidence in its success and reluctance to make trade-offs as they are frightening. Another reason is the pursuit of operational effectiveness at all management levels, which is seductive because of its actionable sense.

The growth trap

Inherently, trade-offs and limits appear to constrain growth. Serving one particular group of customers means excluding others, hence, placing a real limit on revenue growth. Selling at a low price results in lost sales for customers sensitive to advanced features and services. Similarly, differentiators lose sales to price-sensitive customers.

Eventually, pressure to grow will lead managers to take incremental steps that surpass those limits including extending product lines, adding new features, imitating everything about their competitors, chasing every new technology for its own sake and even making acquisitions. Neutrogena can be an example of falling into this growth trap. Widely known as its dermatologist-tested soap for customers with sensitive skin, it then expanded its product varieties such as shampoo and makeup remover – which is not something unique and beginning to dilute its image.

Attempting to compete in several ways at once creates confusion, compromises and inconsistencies in the desire for growth, which eventually erodes organizational motivation and focus. Companies are caught up with the matching process cycle until desperation happens, resulting in a merger or downsizing to the original positioning.

Profitable growth

Many companies that pursue fast growth with compromises and lack of uniqueness can see short-term revenue growth but fail to recognise the increase in profitability.

So, what approaches to growth will preserve and reinforce strategy?

Broadly, an organisation should deepen its strategic position rather than create an umbrella appliance company with shared design, manufacturing, distribution and customer service for its all brands to gain critical mass. One approach is through extensions of the strategy that leverage the existing activity system a company is performing by offering features and services that rivals would find impossible to copy.

For companies seeking growth through broadening within their industry, it is best to create stand-alone units, each with its own brand name and tailored activities. Procter & Gamble, for instance, structures its business into five industry-based sector business units or SBUs: Baby, Feminine and Family Care; Beauty; Health Care; Grooming; and Fabric and Home Care. Each SBU has different product categories, customer teams, transportation, logistics and warehousing.

Therefore, deepening a position not only makes the company’s activities more distinctive and strengthens fit but also communicates the strategy better to those customers who should value it.

The role of leadership

Properly, in an organisation, senior leaders account for developing and reestablishing a clear intellectual framework to guide strategy and make choices when many forces are against it.  However, leaders are often degenerated into orchestrating operational improvements and making deals, focusing less on external strategic issues like competitor moves, customer needs and technology trends, while their roles are broader and far more important such as identifying and communicating the company’s unique position, making clear trade-offs and tightening fit among activities.

Creating an effective and executable strategy is a cultivated skill that requires discipline and constant communication among leaders and team members because if not, managers at lower levels tend to lack the perspective and confidence to maintain a strategy. Yet, most organisations don’t consistently practice strategy development. In addition, simply having an experienced leadership team in place doesn’t guarantee an organisation’s ability to create a strategic plan, rather than a wish list of goals.

Besides, setting limits is another essential function of leadership. That means saying ‘no’ to several others to focus all resources on a narrower set of priorities. Deciding not to serve certain types of customers or not to offer certain features or services is as important as choices about what to do. Despite this, many executives still struggle to understand this principle, they overestimate the capacity of their organisation, overcommitting resources under the term ‘stretch goals’ to deny the organisation’s true limitations.

Besides, making hard trade-offs and shifting organisational designs is an emotional toll that would cause anxiety, interpersonal conflicts, loneliness, isolation, mental and physical stress-related illness among leaders. If those harsh realities are not handled well, they may simply collapse, quit or give up under the challenge it takes.

Failure to take a holistic approach to strategy

The leader’s job of crafting a strategy has never been harder as strategy today demands more components than classic competitive positioning. It requires

 i) Identifying golden opportunities.

ii) Making carefully coordinated choices about the business model with the highest potential to create value in the near term.

iii) Designing the competitive position that captures as much of that value as possible.

iv) Reviewing the implementation process that helps firms adapt constantly to the changing environment while building capabilities to realise value over the long term.

So, the failure to have a sound strategy often stems from the fact that leaders ignore some components of the above complete strategy landscape or don’t recognise the interdependencies among them. For example, some innovative businesses are eager to identify ways to generate value by addressing unmet customer needs – yet don’t adequately analyse what it would take (e.g. what to offer, assets configuration or monetisation method) to capture a sufficient portion of that value.

Or they got excited by the initial success of their business model, grew too fast and broadened the firm’s scope too far but neglected to examine the fit among activities and invest in capabilities to sustain a long-term competitive advantage. Other leaders in traditional corporations tend to underestimate how much new technologies can increase value to customers.

Oversimplifying strategy execution

Strategy execution is as important as strategic planning, but all too often,  executives often fail to execute strategy because they’re oversimplifying its execution. Some either fall into the trap of excessive complexity or lack flexibility and adaption to changing conditions, which defeats thoughtful execution and strategy success.

In fact, execution must be insightfully focused on the most critical aspects of a challenge, from which they may unlock other critical actions, instead of lengthy action plans and Gantt charts. For instance, if a specific category expansion is crucial to creating significant value in a strategy, the execution team should pay attention to achieving this.

Compliance with a strategy plan in a stable environment can result in fruitful outcomes. However, where a high level of uncertainty and change are involved, a rigid plan will leave no space for adaptation to even the simplest types of change such as variation in customer demand, shortages or over-supply of goods. Kodak, Nokia, Blockbuster and traditional CD stores are among some examples of why big firms lost their business to rivals due to a lack of adjustment and flexibility in strategy execution.

References

Andriole, S 2022, Strategy Fails Because Companies Don’t Do It, and Companies Don’t Do It Because They Don’t Know How (Until They Go Outside), Forbes, available at < https://www.forbes.com/sites/steveandriole/2022/01/18/strategy-fails-because-companies-dont-do-it-and-companies-dont-do-it-because-they-dont-know-how-until-they-go-outside/>.

Cespedes, F.V 2017, Your Strategy Has to Be Flexible — but So Does Your Execution, Harvard Business Review, available at <https://hbr.org/2017/11/your-strategy-has-to-be-flexible-but-so-does-your-execution>.

Martin, R 2021, Why Do So Many Strategies Fail?, Harvard Business Review, available at < https://hbr.org/2021/07/why-do-so-many-strategies-fail>.

Neilson, G.L 2010, How Hierarchy Can Hurt Strategy Execution, Harvard Business Review, available at < https://hbr.org/2010/07/how-hierarchy-can-hurt-strategy-execution>

Porter, M.E 1996, What Is Strategy?, Harvard Business Review, available at <https://hbr.org/1996/11/what-is-strategy>.

Sull, D and Sull, C 2017, Executives Fail to Execute Strategy Because They’re Too Internally Focused, Harvard Business Review, available at <https://hbr.org/2017/11/executives-fail-to-execute-strategy-because-theyre-too-internally-focused>.

Zook, C and Allen, J 2022, 4 Common Reasons Strategies Fail, Harvard Business Review, available at < https://hbr.org/2022/06/4-common-reasons-strategies-fail>.

Julia Nguyen

Julia is a professional with nearly a decade of experience in corporate finance and financial services. She holds two master’s degrees—a Master’s in Finance and an MBA, both of which reflect her dedication to business excellence. As the creator of helpfulmba.com, she aims to make business concepts approachable to a wide audience. When she isn’t working or writing for her website, Julia enjoys spending quality time with her small family, finding balance in both her professional and personal life.