Business strategy is broken in many companies
According to Strategy&’s survey of 2,800 executives from companies of various sizes, geographies, and industries:
- Most executives don’t feel their company’s strategy will lead to success,
- Two out of three respondents admit their company’s capabilities don’t fully support their strategy,
- Only one in five are fully confident they have a right to win,
- The majority say their company has too many conflicting priorities.
Coherent companies outperform others in terms of growth and profitability
The same study has revealed that coherent companies are 3 times as likely to grow faster than the market as incoherent companies. And they’re 2.5 times as likely to say they’re more profitable than the market, compared to incoherent companies.
The most successful companies owe their success to their differentiating capabilities and coherence
In another survey of more than 700 executives, Strategy& asked executives to indicate what drives the success of the largest companies in their industry. Is it capabilities or assets, coherence or diverse portfolios? The result: Capabilities-driven companies — those that are seen to owe their success to having a truly distinctive way of providing value, a powerful set of capabilities, and coherence between their strategy and capabilities — on average have higher Total Shareholder Return than others. By contrast, companies that compete on the basis of economies of scale, lucrative assets, or diversification fare less well. The survey also finds that companies with a clear identity — standing for something unique and consistent over time — tend to perform better than others, and that a capabilities-driven approach helps them develop that identity.
Capabilities-driven M&A deals generate higher returns than deals with other rationales in mind
In examining 540 major global deals in 9 industries announced between 2001 and 2012, we found that deals that leveraged the buyer’s key capabilities or helped it acquire new ones produced significantly better results, on average, than deals done for other reasons, like diversification deals.
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