We know why strategies fail: They fail when companies don’t give sufficient attention and weight to their differentiating capabilities and how these capabilities should fit together to form a mutually reinforcing system. Because this blind spot is so common in corporate strategy, the rewards are all the more immense for companies that manage to align their key capabilities.
At Strategy&, we work with our clients to develop a coherent, capabilities-driven strategy that aligns at every level. Only a coherent company — one that pursues a clear strategic direction, builds a system of differentiating capabilities consistent with that direction, and sells products and services that thrive within that system — can reliably and sustainably outpace competitors.
Watch Frito-Lay use one of its capabilities, direct store delivery, to provide a defined outcome. By aligning a number of processes, systems and tools, skills, knowledge and behaviors, and organizational structures around direct story delivery, the company connects its firm strategy and execution to create value for customers
For capabilities to deploy their full potential, they need to work in a reinforcing system. Watch how Frito-Lay combines three of its differentiating capabilities — direct-store delivery, continuous innovation of new products, and consumer marketing — into a successful system.
Watch how companies succeed by mutually reinforcing the alignment of a deliberate way to play, a supportive capabilities system, and a relevant portfolio of products and services.
Strategy& has conducted several studies to better understand how companies create sustained value. Many of the most important findings have been expanded and published as popular articles and top business books, including Strategy That Works (Harvard Business Review Press, 2016). Here are a few highlights of our research:
According to Strategy&’s survey of more than 6,000 executives from companies of various sizes, geographies, and industries:
Overall, almost two in five companies are rated as “adrift.”
The Strategy Profiler identifies six archetypes, types of companies that face a common set of challenges when it comes to developing and executing a winning strategy.
Our research has revealed that coherent companies are three times as likely to grow faster than the market compared with incoherent companies. And they’re twice as likely to report above-average profits.
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.
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.
In studying changes in total enterprise value of the largest companies in each of 39 key industrial sectors, we found that most industries have not been dramatically disrupted, that the rate of disruption has hardly increased over the course of the past decade, and that the pace of disruption is generally much slower than the conventional wisdom may suggest, and thus easier to deal with.
In researching how people feel at work and how they could be better engaged and motivated, we found that most people aren’t motivated and don’t feel connected to the organization. But there’s a way out of this crisis of motivation. Indeed, strategic purpose holds great potential to inspire.
In studying the relatively new function of the Chief Strategy Officer (CSO), we found that only 25% of the CSOs we surveyed said they were very successful at creating value for their company. We’ve identified three areas that many strategy teams are struggling with and lessons learnt from the best.