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Closing the Strategy-to-Performance Gap

Strategy development outpaces strategy execution, say executives in a new survey. If their companies could become ''very effective'' at executing strategy, they would expect operating profits to improve by an average of 30 percent.
Stephen Taub, CFO.com | US
February 22, 2005

Companies are delivering only about two-thirds of their potential due to failures in planning and execution, according to a new survey of 197 senior executives at companies with sales of at least $500 million. The survey was conducted by the Economist Intelligence Unit (a sister organization of CFO.com) on behalf of management consulting firm Marakon Associates.

Although 76 percent of respondents indicated that in delivering superior financial results, executing strategies is more important than developing them, 65 percent acknowledged that they were worse at strategy execution than at development.

Few respondents rated themselves as "very effective" at executing their strategies. On average, respondents said they achieve just 63 percent of the financial performance they aim for; more than one-third said they achieve less than 60 percent. Unsurprisingly, larger companies (greater than $5 billion in revenues) rated themselves lower in this regard than smaller companies (less than $1 billion in revenues).

Why can't companies execute their strategies? The reasons cited most often by survey respondents, in order:

• Inadequate or unavailable resources;
• Poor communication of the strategy to the organization;
• Poorly defined plans of action;
• Poorly defined accountability; and
• Organizational or cultural barriers.

"The causes of this strategy-to-performance gap can be invisible to top management," noted Marakon managing partner Michael C. Mankins, in a statement. "That's why leaders often pull the wrong levers in their attempts to turn performance around — they press for better execution when what's really needed is a better strategy, or they opt to change direction when they really need to focus the organization on execution. The result: wasted energy, lost time and continued underperformance."

And the potential payoff for closing that strategy-to-performance gap? Survey respondents said if they became "very effective" at strategy execution, they would expect operating profits to improve by an average of 30 percent over two years.

When asked how they would turn things around, respondents gave low priority to management development (building the skills and capabilities required to execute strategy) and strategy development (making better strategic decisions in the first place). Their top responses, in order:

• Better communication of the strategic decisions;
• Better identification of specific actions required to execute strategies;
• Better tracking against key milestones and implementation progress;
• Holding individuals more accountable for delivering results;
• Giving people more freedom and authority to execute;
• Getting the right people involved in strategy development from the beginning;
• Making individual success and failure more consequential.




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