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Top 10 Reasons Your Business Strategy Could Fail

Jan. 15, 2015
Leaders who rigidly apply a top-down approach to business strategy will not achieve success. Instead, they must assemble the right group of diverse individuals who will capture creative and innovative thinking.

Through our research work and consulting experience over the past 34 years with 42 electrical distributors, 16 electrical manufacturers, and 24 independent electrical manufacturers’ reps, we have consistently found 10 major reasons why these companies fail to execute their business strategies. The electrical distribution channel is not alone when it comes to flawed strategy execution. Consider the following statistics:

90% of well-formulated strategies fail due to poor execution.
— Harvard Business School Press

70% of CEO failures come not as a result of poor strategy, but from poor execution.
Fortune magazine

66% of corporate strategy is never executed.
— Ernst & Young

These alarming statistics back up what Farmington Consulting Group has found through our consulting experience in the electrical wholesaling industry. Following are the most common reasons business strategies fail in this market.

Company leaders develop strategy alone and/or do not select the right people to serve on their company’s strategy team. Leaders who rigidly apply a top-down approach to business strategy will not achieve success. Instead, they must assemble the right group of diverse individuals who will capture creative and innovative thinking. Rigid top-down leadership is the most common reason why strategic planning sessions fail. These autocratic leaders rely on their own thinking rather than the thinking of others. They possess tunnel vision because they don’t seek outside opinions and diversity. Autocratic leaders are not comfortable with collaborative decision making.

Most top-down leaders believe strategic planning is a one-year operating plan that treats the problems of the day rather than a thoughtful three- to five-year strategic analysis. Instead of employing this business philosophy, they should lead a strategy-creation and execution team process. The leader should be the strategy team’s biggest cheerleader by actively participating on the strategy team and by enthusiastically communicating the company’s vision, mission, goals and strategies through company meetings, informal talks and written communications.

Herb Kelleher, co-founder and former chairman and CEO of Southwest Airlines, actively participated but did not lead Southwest’s strategy team. When Kelleher believed that a strategic initiative was not in line with Southwest Airlines’ vision and mission, he would often bring the team back to Southwest’s vision, mission and strategic goals.

As the company’s top leader, you don’t need to become another Herb Kelleher. But you do need to ensure everyone is plugged into your organization’s strategy by communicating company vision, mission, goals and strategies to employees, strategic suppliers, customers and the community; fostering teamwork and creating a work culture that values collaboration; and creating a cross-functional strategy team composed of marketing, sales, purchasing, branch operations, distribution, finance, human resources and IT talent.

A company’s strategy does not ignite employee passion. There must be passion beyond a business strategy session to achieve strategy-execution success. If all of your employees don’t have a passion for where the company is going and what critical part each of them plays in it, even the best business strategies will fail in execution.

The company’s leader or management team must develop a compelling vision during their strategy session that details where the company is going five or more years into the future. The vision should resonate with all members of the organization and help them feel proud, excited, inspired, motivated and part of something much bigger than themselves. The best leaders in the electrical wholesaling industry continually instill a passion within all employees to successfully execute their strategies.

The company’s strategy team is not responsible for both creating and executing strategies. When most electrical distributors, electrical manufacturers and independent manufacturers’ reps develop their business strategies, they are created by relatively few people. These strategy creators tend to only be the senior leaders of their organization. They leave strategy execution to lower-level leaders and other team members and only review it periodically.

Best-practice electrical distributors, manufacturers and reps organize cross-functional strategy teams that take equal ownership for both strategy-creation and strategy-execution.

A company remains internally-focused with its business strategy and does not gather “outside-in” critical market intelligence from channel partners. Best-practice distributors, manufacturers and reps balance “inside-out” thinking with “outside-in” thinking from channel partners to accurately measure employee perceptions versus strategic customers and suppliers perceptions of performance.

Outside-in feedback is gathered through confidential, honest and candid feedback from both customers and suppliers who produce innovative strategies that build and sustain distinct competitive advantages. Your best bet to gather this feedback may be using a third-party market research firm that can guarantee anonymity from research participants.

Company lacks the right strategy-creation and strategy-execution structure and accountability. Many companies fail in their strategy-creation sessions because of a lack of structure and accountability. The strategy sessions should involve different analytical exercises through each cycle of the meeting to stimulate participants to think strategically. Having a clear agenda with timelines is essential for a productive strategy session. The typical two-day strategy session agenda Farmington Consulting Group employs with distributors, manufacturers, and reps is shown in the chart on this page.

Before ending the strategy session the team must answer three key questions:

1.            How will the strategy session results be communicated to employees, customers, suppliers and other appropriate parties?

2.            How often will each strategy execution team meet to achieve its team mission, goals and action plans?

3. Will each strategy team make formal progress update presentations at quarterly strategy team meetings?

A company attempts to execute too many strategies. When it comes to strategy execution, think in threes. We guide all of our clients to reduce the top strategies they want to execute to no more than three. Thinking in threes forces our clients to build focused, achievable strategies that can be successfully executed over the next three years.

Form a strategy execution team for each of these three top strategies. Each strategy team creates a team purpose and specific, measurable, stretch-achievable team goals that align with the company’s three-year strategic goals, and then develops and executes specific action plans to achieve the strategy team’s goals.

The company does not continually measure strategy results and link them to a performance scorecard system with individual and team rewards for achieving specific elements of the strategic plan. Building performance scorecards that support your company’s strategy will transform your strategy into positive, actionable results. Like an airplane’s control panel or an automobile’s dashboard, performance scorecards help companies achieve their strategies by providing a comprehensive view of performance.

Balanced scorecards first surfaced in the early 1990s when Robert Kaplan and David Norton authored three Harvard Business Review articles on how to use them. Based on their experiences, Kaplan and Norton developed a balanced scorecard around the idea that impressive financial returns are only one of several important factors in a business’s success. They introduced four perspectives to include on the balanced scorecard: financial measures, customer measures, internal business process measures, and learning and growth measures.

We help Farmington Consulting Group clients create and execute successful long-term business strategies that use balanced scorecards to align their business activities to their vision, mission and strategic goals. Properly designed, a balanced scorecard provides an alignment framework for all employees. It holds each employee accountable for both individual and company goals.

Everyone in the organization understands what each person or group is working toward. The balanced scorecard requires a rigorous process and commitment, but it’s a key element in effectively translating a company’s strategy into actionable results.

Financial compensation is a powerful performance lever. Linking the company’s balanced scorecard to an incentive compensation plan creates the push for achieving a successfully executed business strategy.

The company does not hold quarterly progress update meetings for the strategy execution team. Our clients that hold these quarterly meetings have enjoyed real success. The five purposes of quarterly strategy execution team meetings are as follows:

1.            Clearly understanding the status of each strategy execution team’s progress.

2.            Keeping each team’s focus on strategic, rather than urgent, tactical issues.

3.            Leveraging all appropriate company resources while maintaining accountability for performance.

4.            Facilitating communication and support throughout the strategy team.

5.            Providing quarterly strategy team updates to all company personnel.

The company does not hold quarterly all-employee meetings to update everyone in the company about strategy execution progress. Communicating your strategy-creation and execution results throughout the organization to gain understanding and buy-in is essential to effective strategy execution. All employees should be provided quarterly updates on strategy execution team progress. Other key stakeholders such as strategic customers and suppliers should be provided semi-annual updates of your company’s strategy execution progress.
The company does not use an experienced outside facilitator to objectively manage the strategy-creation and strategy-execution process. Most distributors, manufacturers and reps choose to facilitate their own strategy sessions. This is a mistake. Strategic planning sessions run by team members often become expanded staff meetings, rehashing old positions, inhibiting innovative strategic thinking, and leaning toward the strongest members’ views.

Resistance to employing an experienced outside facilitator with experience in the electrical channel will impair your company’s strategy-creation and execution. This facilitator’s job is to objectively manage the strategic information exchange between managers, employees, strategic suppliers and customers.

Outside facilitators should have in-depth channel knowledge of industry best practices developed by collecting and analyzing market research and from their experiences of working with distributors, manufacturers and reps in a consulting role to understand their inner workings. A skilled electrical channel outside facilitator will do the following:

  •                 Ensure cross-functional strategy team members see themselves as equal stakeholder voices.
  •                 Ensure all team member ideas are valid.
  •                 Guarantee everyone provides candid and honest feedback.
  •                 Make sure everyone on the team actively listens to each other.
  •                 Make certain the strategy team seeks common ground and actions based upon consensus and not influenced by the most powerful or strongest team member.
  •                 Serve as a coach and mentor to the strategy team throughout the strategy execution process.