Why strategies fail
It has been said that up to 90% of strategies fail. Sounds harsh, indeed. But even if the claim may be provocative, there is reason to ask why so many strategies go wrong. Tons of explanations have been served, below are some statistics that I believe shed light on why. The stats have come my way during the last few years, and unfortunately my archives do not give proper credit to all my sources.
My own studies of Finnish companies reveal that about 50% of them create strategies with at least some kind of documentation. The reasons the other half does not do strategy may be that (a) strategy is not considered essential, (b) there is no time to work on strategy as daily fire fighting gets priority, (c) the short term objective is to survive, or (d) management lacks strategic skills. Nevertheless, studies show that successful companies have realized the importance of strategic planning. These companies use a good amount of mental resources and time to create strategies and to execute them.
Despite this, 85% of business leaders spend less than an hour per month on strategy. With that kind of commitment it is difficult to expect strategic output of quality, not to mention strategic implementation. About 80% of business leaders consider strategic implementation their biggest challenge. The implementation suffers from the facts that (a) if there is a corporate incentive scheme, 75% of the implementing managers lack strategy related incentives, and (b) 60% of the companies doing strategy do not link it to annual budgets.
Strategy has a meaning only when it is understood by the whole organization. Hence, all strategies include an element of implementation. However, whereas 50% of leaders say that their strategies are implemented only 10% of the personnel think that strategies are implemented. And typically, around 5% of the staff reports that they understand the strategy of their company. In light of this, it can be asked whether the reason is bad strategy or bad leadership.
If about half of the companies are doing strategies, some of them are strategies just for the sake of it. A report from Market Vision stated that 72% of strategic decisions are based on gut feel. In other words, decisions and directions less often rely on facts and a thorough understanding of the market environment. In my own strategic work, I have often noticed on how shaky grounds strategies are. Quite often the basics of any business are highlighted as strategic pillars. For instance, 75% of companies mention customer service as a critical strategic element and correspondingly 70% mention customer satisfaction as their main value. Differentiation and competitive advantage require more than clichés, hence, strategic planning should get a higher status.
Conversely, if 50% of companies do not create any kind of systematic strategy, if 15% of leaders invest in strategy work, if 28% of leaders gather data for strategic decisions, if 20% of leaders believe they have the skills to implement strategy, if 25% of leaders provide their key personnel with strategic incentives, and if 40% of leader link their strategy to annual budgets, then, suddenly the failure rate mentioned in the beginning does not sound so incredible anymore. That said, boldly into the wonderful world of strategizing, just a little statistical margin of error and the strategy may actually work.