According to the Center for Creative Leadership (CCL), approximately 70% of corporate initiatives fail. This seems to be a staggering statistic; however, there are relatively simple aspects of strategy formulation, decision-making, crisis management, environmental scanning, and organizational alignment issues that can easily derail even the best strategic initiatives. Considering this, it is not surprising so many strategies crash and burn along the way.
Take crisis management for example. From the recent J&J recall debacle to Tony Hayward’s multiple gaffs as the CEO of BP during the recent oil spill crisis, executive leadership can – with just a few hasty words or a lack of action – crush an organization’s short and long-term strategic objectives.[1] 40% of BP’s asset base rests squarely in North America. Further, the oil company’s long-term strategy is to increase market share in the U.S. Hayward’s handling of the crisis and his subsequent resignation (or ouster) demonstrate the importance of quickly doing the right thing. It is imperative that organizations and their leadership carefully consider all aspects of crisis communications, lest they be bathed in the flames of public opinion.
Organizational alignment is also an area that warrants particular attention. Intuitively, most organizations link extrinsic rewards (bonuses, vacations, pay increases) with performance.[2] Emerging research now shows us there is often a disconnect between rewards and performance and, in some cases, the rewards system works against the organizational strategy. Poorly aligned rewards systems can cause employees to act in their own best interests instead of considering the long-term impact of their decisions. Further, some rewards programs negatively influence performance because they narrowly focus behaviors and stifle creativity. As executives responsible for aligning rewards with organizational goals, we must carefully consider all aspects and ensure we are driving the right behaviors at the right times.
A lack of awareness of decision-making shortcomings, particularly during strategy formulation, also contributes to the 70% failure rate. Often executives develop strategies anchored in broken logic or through the consideration of sunk costs. They seek confirming opinions instead of unbiased challenges to ideas. The corporate “yes man” perpetuates the status quo until the emperor wears no clothes. Understanding how our brains deal with decision-making – and how others arrive at decisions of their own – allows us pause when making decisions. Without pause, there is no depth in thought.
Opportunities for missteps and mistakes abound in strategy execution. While we cannot possibly conceive every eventuality during strategy formulation or plan for every contingency during strategy execution, we can understand and be alert for the landmines that often lie just beneath the surface. Along with the above, proper and thorough environmental scanning can limit the holes in the strategic planning and execution process. As business leaders, a 70% failure rate is unacceptable and a rudimentary understanding of the variables that lurk within our strategies can give us the information we need to execute our plans successfully.
[1] http://www.msnbc.msn.com/id/38408419/ns/business-oil_and_energy/
[2] Drive (Pink, 2009)
