Why Strategies Fail

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Published on February 23, 2014

Author: ArnoudvanderMaas1

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Survey after survey reveals that most strategies fail. The majori-ty of strategies fail in the implementation phase. This article presents seven failure factors that help managers successfully develop and execute their strategies.

Survey after survey reveals that most strategies fail. The majority of strategies fail in the implementation phase. This article presents seven failure factors that help managers successfully develop and execute their strategies. Why Strategies Fail Seven Reasons for Strategic Failure Dr. Arnoud van der Maas a.vandermaas@strategosconsulting.nl February 2014 For decades survey after survey reveals that most strategy implementations fail. The majority of strategies fail in the implementation phase. This is the strategy implementation problem: ‘the all too frequent failure to create change after seemingly viable plans have been developed’. Because of its high failure rate, achieving successful strategy implementation remains a continuing challenge for managers and executives with strategy implementation responsibilities. Based on PhD research, this article presents seven reasons for strategy implementation failure that allow managers and executives to master one of the greatest management challenges – successfully implementing strategies. Collectively, these seven failure factors help managers and executives to avoid these common reasons for strategy implementation failure and successfully execute strategies within their organizations. © 2014 STRATEGOS CONSULTING Λ The Majority of Strategies Fail Decades of research reports that most organizations fail at strategy implementation. Few intended strategies are successfully realized (Mintzberg, 1990), despite its strategic importance to any organization. Survey after survey reveals that strategy implementation is a top priority for executives (Harvard Business Review, 2006). However, fewer than 15 percent of organizations around the world report that they are successful at strategy implementation (ibid). Various studies have reported implementation failure rates at 60 to 90 percent (Kaplan & Norton, 2005). The majority of strategies fail in the strategy implementation phase (Noble, 1999). An important part of these failures can be traced to poor implementation (Nutt, 1999). Most of these failures generally stem from elements that were under control (ibid). After a comprehensive strategy or single strategic decision has been formulated, significant difficulties 1

STRATEGY SERIES are often encountered during the following strategy implementation process (Alexander, 1985). A widely shared experience is that all too often plans do not work out as intended (Wernham, 1984; Nutt, 1999). Many organizations have a fundamental disconnect between the formulation of their strategy and the implementation of that strategy into useful action (Kaplan, 1995). This has been called the strategy implementation problem: ‘the all too frequent failure to create change after seemingly viable plans have been developed’ (Nutt, 1983). As a result, strategy implementation is s an enigma and a source of frustration in many companies (Noble, 1999b). Achieving successful implementation remains a continuing challenge for managers responsible for executing strategies (Cravens, 1998). Strategy implementation is a multifaceted and highly complex organizational phenomenon (Wernham, 1985; Noble, 1999). The process tends to be messy, ambiguous and often involves many departments in the organization (Noble, 1999b, Schofield, 2004). Part of this complexity arises from the social and political aspects of strategy implementation, which need to be taken into account. Personality differences, politics, communication problems, and struggles over power and leadership are just a few obstacles that may undermine an implementation effort (De Kluyver & Pearce, 20013). Hence, there is a growing recognition that the most important challenges in strategic management are in strategy implementation as opposed to strategy formulation (Flood et al., 2000). Seven Reasons for Strategy Implementation Failure To investigate the reasons for success and failure of strategy implementation a qualitative survey was conducted of 55 executives and managers with strategy implementation responsibilities within 44 public and private organizations. From this PhD research seven factors emerged that were related to strategy implementation failure. When taken into account, these seven reasons for strategy implementation failure allow managers to master one of the greatest management challenges – successfully implementing strategies. The seven reasons for strategy implementation failure are depicted in Figure 1. 1. Incompetent Management Inadequate capabilities of managers are a common cause of strategy implementation failure (e.g. Beer & Eisenstat, 2000; Pinto & Slevin, 1987; Alexander, 1985). Without competent organizational members, implementing a strategy successfully becomes very difficult if not impos- 1 Incompetent Management 2 7 Vague Strategic Vision Orgnanization Culture of Fear Strategy Implementation Failure 6 3 Neglect of Political Interests Inadequate Strategy 5 Insuffient Planning & Control © 2014 STRATEGOS CONSULTING Λ 4 Absence of Implementation Plan 2

STRATEGY SERIES sible. Organizational members with implementation responsibilities need to have sufficient skills and knowledge to implement the strategy. Eventually organizational members are the ones who have to perform the implementation activities to make the strategy a success. Especially, having competent management is important. When top management is incompetent, the whole organization is affected and thus the strategy implementation effort as well. Furthermore, when employees have little confidence in the ability of management to execute the strategy then their commitment to the strategy will be low. Having incompetent members within a team negatively influences the performance of other organizational members. Well-performing organizational members have their motivation reduced when they have to work with poor performing colleagues. Especially the presence of incompetent managers has a very negative influence on the performance of subordinates. If a person is competent and that person’s manager is not, this is likely to have a negative influence on the level of motivation and implementation performance. Successful organizational members tend to leave an organization when they have to work for incompetent managers and feel that their performance is not appreciated or even worked against. To increase the level of competence of organizational members several practices can be used such as training and education, coaching and counseling, giving feedback about performance, addressing poor performance, hiring and firing of organizational members and bringing in external expertise. 2. A Vague Strategic Vision Successful strategy formulation and implementation begins with formulating a sound and clear strategic vision by top management. A strategic vision describes the desired future state of the organization. The strategic vision helps clarify the direction in which an organization is to move (Kotter, 1995). A clear and well-formulated strategic vision is a key requirement for effective organizational redesign (Miles et al., 1995). Without a clear strategic vision organizational members and other stakeholders lack a clear direction for the new strategy. Managers and employees need to know that they have to achieve with © 2014 STRATEGOS CONSULTING Λ respect to the strategy implementation. Therefore, the strategic vision needs to be clearly defined and well formulated (Hussey, 1996). In addition, the strategic vision needs to be attractive and easy to communicate toward organizational members, customers, shareholders, and other relevant stakeholders. The simpler the strategic vision is, the easier it is to understand and execute for organizational members. A clear and attractive strategic vision increases the confidence of employees in a successful outcome of a strategy implementation effort. An attractive new strategic vision can help to attract and unite organizational members and stimulate them to increase their effort (Trice & Beyer, 1991). However, not only must the vision be clear and attractive, it must also realistic and feasible. An unrealistic strategic vision reduces the motivation and commitment of organizational members. 3. An Inadequate Strategy No implementation can save a strategy, which is not feasible or sound to begin with. A failure to think through the strategy makes it impossible to implement, except by chance (Hussey, 1996). An unclear strategy and conflicting priorities are barriers to strategy implementation (Beer & Eisenstat, 2000). Not only needs a strategy be sound and feasible it needs to be clear also. Organizational members who have to implement the strategy need to have a clear understanding of the strategy. They need to understand what the (operational) objectives of the strategy implementation are and what the consequences are for them as individuals. Furthermore, organizational members need to know what to do to make the strategy a success. Consequently, a strategy needs to be simple and focus on the essence of the strategy. When a strategy is clear and simple, it is easier to understand for organizational members. However, managers and executives have a tendency to keep the strategy rather vague allowing them to avoid criticism when the strategy proves unsuccessful. Vague strategies are often a natural outcome of policymaking processes in the public sector. Strategies and policies are often developed in a way that reduces the level of clarity of the strategy or policy and makes implementation 3

STRATEGY SERIES problematic (Baier et al., 1986). Unlike private firms, public organizations tend to be government by controlling bodies that consist of multiple and competing interests (Ring & Perry, 1981). The controlling body tends to consist of policy makers who often have different agendas, which are designed to benefit their own constituents, but not necessarily those of others in the controlling group (Nutt, 1979). Therefore, there is a need to create coalitions with multiple and often competing objectives in order to agree on a certain policy (Baumer, 1978) or strategy. A common method for securing policy support is to increase the ambiguity of a proposed policy (Page, 1976). A usual observation of policymaking processes is that ‘difficult issues are often ‘settled’ by leaving them unresolved or specifying them in a form requiring subsequent interpretation’ (Baier et al., 1986: 206). ‘Policy ambiguity allows different groups and individuals to support the same policy for different reasons and with different expectations, including different expectations about the administrative consequences of the policy’ (1986: 206). ‘Thus, official policy is likely to be vague, contradictory, or adopted without generally shared expectations about its meaning or implementation’ (1986: 206). The lack of clarity allows policy makers to show their constituents that they have successfully represented their interests (Nutt, 1979). ‘In this way, the ambiguity or a policy increases the chance of its adoption, but at the cost of creating administrative complications’ (Baier et al., 1986: 207). Thus, policy ambiguity is less the result of deficiencies of policy makers than a natural consequence of gaining the required support for the policy and of changing preferences over time (ibid). 4. Missing Implementation Plan After the strategy is developed, it needs to be translated into a concrete and well worked out implementation plan. A strategic plan cannot be executed when it is not translated into operational terms (Kaplan, 1995). Even the best strategy is worthless when managers cannot translate the strategy into operational reality. The strategy implementation plan specifies the processes, activities and operational objectives that are required to achieve the goals of the strategy. The strategic objectives need to be translated © 2014 STRATEGOS CONSULTING Λ into measurable operational implementation sub-objectives (Reid, 1989) and linked to departmental and individual goals (Kaplan, 1995). Measurable objectives provide an effective basis for management control of the implementation (ibid). A lack of clear strategy objectives contributes to strategy implementation failure. Without concrete objectives and milestones, it is impossible to measure the progress of the strategy implementation. This makes managing and improving the strategy implementation impossible. Therefore, the implementation plan needs to contain a clear set of concrete and measurable objectives or targets. Clear and specific tasks need to be defined which are required to achieve these targets. Everyone with strategy implementation responsibilities needs to know what to do in order to implement the strategy and what concrete objectives they have to attain. Unclear objectives leave room for differential interpretation and discretion and may thus contribute to implementation failure (Barrett, 2004). Furthermore, effective strategy implementation requires clear implementation tasks, activities and responsibilities. Implementation can only be successful when there is a clear and shared understanding of who does what, when, at what cost (Allio, 2005). Not only should the necessary actions to implement the strategy be identified and planned, responsibility for these actions should be allocated as well (Owen, 1982). By allocating clear responsibilities for the execution of the implementation activities, progress can be measured and controlled (Reid, 1989). However, as we saw earlier, managers have a tendency to keep a strategy rather vague and ambiguous. Such an approach also has its advantages as plans are by their nature designed to promote inflexibility as Mintzberg (1990) once noted. Research has shown that specific and ambitious but realistic goals, which are accepted by organizational members lead to the best task performance (Erez & Kanfer, 1983). People need realistic challenges to perform well. When organizational members have decided that it is impossible to reach a goal they will stop trying to reach that goal (ibid). 4

STRATEGY SERIES 5. Inadequate Planning and Control Many strategy implementations fail because of a lack of monitoring and control. Often an effective planning and control system is missing. Without timely and accurate management information it is impossible to assess the progress of the strategy implementation effort. It is very important to assess what affect the implementation is having and correct or adjust the strategy or its implementation should it produce negative or unsatisfactory results. During the strategy implementation, the strategic goals translated into operational goals with performance indicators need to be monitored to assess whether the objectives are being achieved. Without monitoring and evaluation it is not possible to cut an errant strategy before losses or negative impacts become too costly or damaging (Crosby, 1996). As strategy implementation plans are destined to change, implementation teams need to regularly meet in wellstructured, punctuated sessions to share information, reconfirm priorities (Allio, 2005) and make decisions. This way, management can make adjustments when needed and thus control the strategy implementation effort. To make these adjustments it is required to assign clear responsibilities for the achievement of those targets. When objectives are not being met, the person or persons responsible need to be held accountable. When the goals of the strategy implementation are not being it is possible that the assumptions underlying the strategy are flawed or obsolete (Kaplan & Norton, 2008b). When this is the case it the strategy needs to be analyzed to assess whether incremental adjustments will suffice or whether a new strategy is needed (ibid). Many organizations have accountability problems, which may be the result of a lack of planning, the absence of a functional management information system, or the existence of cultural values which do not encourage holding persons, especially in high positions, accountable (Kiggundu, 1996). When a strategy implementation is finished it needs to be evaluated. This way, an organization may learn from the implementation, which can benefit future strategy implementations. Furthermore, it is important to conclude and evaluate a © 2014 STRATEGOS CONSULTING Λ project so that employees see what they worked for, creating a sense of closure. 6. Neglect of Political Interests Politics and struggles over power and leadership are just a few obstacles that may undermine an implementation effort (De Kluyver and Pearce, 2003). Strategy formulation and implementation inevitably raise questions of power within an organization (Pettigrew and Whipp, 1991). The existence of conflicts, and the use of individual and group power needs to be taken into consideration (Bergadaà, 1999). The very prospect of change confronts established positions (ibid), which may lead to resistance to change. Resistance to change may lead to passivity toward the strategy or even sabotage. Managers can overcome resistance to change by involving potential opponents in decision-making, taking their interests seriously and clearly communicating the new strategy and its advantages to them. 7. A Culture of Fear The existing organizational culture can be an obstacle to strategy implementation. An organization culture can be characterized by fear for making mistakes, responsibility, participation, and change. When managers act in authoritarian and punitive ways, subordinates may become reluctant to make mistakes and engage in learning behaviors (Edmondson, 1999). Employees may become shaped by organizations with high levels of centralization, formalization, and rigid rules and may become passive and unable to be creative or exercise initiative on the rare occasions that it is encouraged and rewarded (Martinko & Gardner, 1982). However, to implement a strategy successfully, proactive organizational members are often needed who participate in strategy formulation and implementation. In order to participate, organizational members need to dare to take initiative, voice their opinion, and not be afraid to make mistakes. Therefore, an empowered and fearless organization culture needs to be created in which organizational members are able to make mistakes without being punished for it. When organizational member believe that well-intentioned interpersonal risks will not be punished, this fosters learning behavior (Edmondson, 1999). Fundamental organizational change 5

STRATEGY SERIES can contribute to a culture of fear as it often involves major uncertainty and can trigger intense emotions, such as anxiety (Huy, 2002). As a new strategy can be accompanied by layoffs, organizational members may perceive it as a threat to job security. Job insecurity is related to a variety of negative responses such as lower job satisfaction, lower organizational commitment, lower job involvement, increased psychological withdrawal, greater resistance to change, greater propensity to leave the organization, lower trust in management (Borg & Dov, 1992) and withdrawal cognitions and behaviors including reduced work effort, increased absenteeism, and theft (Davy et al., 1997). To change an existing organizational culture several strategies and tactics can be used. First, a very clear vision of the new organizational culture is needed. The vision needs to clearly describe the new culture and how it differs from the old culture what its advantages are. This needs to be communicated very clearly to the employees. Cultural change involves a lot of communication. Another tactic is to individually coach and council employees. This includes having open conversations with employees. Involve employees and give them information about their performance and the new culture. Providing training and education, especially motivational courses, can also be used to change the culture. Furthermore, visible changes, such as new uniforms and a new corporate logo can be used to make the culture change more visible and tangible to organizational members. In addition, hiring employees who have a better fit with the new culture and demoting or letting go of employees who not able to fit in the new culture are another tactic that can be used. Finally, leadership from top management is crucial in culture change. Top management need to serve as an example of the norms and values it wishes to convey to organization. Changing the existing culture of an organization is a difficult and time-consuming process. It may take years to successfully change an existing organizational culture. Changing habits that have been the same for a very long time is not easy. ganizations. Arnoud received a PhD in Strategic Management from Rotterdam School of Management, Erasmus University. One of the top business schools in Europe. This article is based on this PhD thesis on strategy implementation in an international context, which can be found here. Dr. Arnoud van der Maas (a.vandermaas@ strategosconsulting.nl) is a consultant in strategy & finance to public and private or- © 2014 STRATEGOS CONSULTING Λ 6

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