Most major corporations struggle with developing a business strategy that works
Most major corporations struggle with developing a business strategy that works. Fifty percent of business leaders don’t believe they have a winning strategy to begin with and almost all report missing major opportunities in the market. About two-thirds of business executives say that their company’s capabilities don’t support the way they create value in the market. And 80% of senior executives say that their overall strategy is not well understood – even within their own company. These problems are not caused by external forces. They are the outcome of the way most companies are managed. These are some of the findings of ongoing global research on senior executives carried out by Strategy&, PwC’s (http://www.PwC.com) strategy consulting capability.
Jorge Camarate, Strategy& Partner, says: “Worldwide and across the African continent we are seeing companies battle with how to develop strategies that keep them competitive in an increasingly complex global marketplace. All too often companies don’t think about strategy and execution together.
“We have a number of business leaders who understand this problem, but very few who know how to overcome this.”
There are few companies that are able to successfully close the gap between their strategy and their execution. Those companies that are successful – referred to as ‘coherent’ companies – are the ones that are able to bridge this strategy-to-execution gap by applying the unique capabilities that distinguish them from their peers.
Coherent companies usually have the ability to align their value proposition with their distinctive capabilities and their portfolio of products and services. These elements shape a company’s identity, culture and approach to managing resources.
Traditionally, firms formulate a strategy by looking for growth opportunities in the market. For large enterprises, such an approach would include expansion into Africa. However, attempts to build businesses in Africa frequently result in value destruction. A recent study conducted by Strategy& on M&A activity in Africa, shows that of the business expansions into Africa, as many as 66% resulted in negative shareholder returns. The study also shows that deals with no capability alignment (32% of the total number) significantly underperform compared to those that a have a clear capability alignment.
The results of the study suggest that there is a need for a new growth strategy that builds on and enhances companies’ existing capabilities. This will create more shareholder value than purely seeking out markets based on their intrinsic attractiveness.
It is critical that companies expanding into Africa should focus on their own capabilities. They need to align their efforts in order to successfully execute their strategy with what they are best at. One of the key success factors is that it takes unconventional leadership to foster the behavior required of coherent companies. In other words, organisations need to bridge the gap between strategy and execution. Our independent research of multinationals that have expanded across the African continent demonstrates how the effective execution of a winning strategy is what sets successful companies apart.
In the process, we see the following acts of unconventional leadership as being of fundamental importance:
1. Commit to an identity: A true identity expresses what a company does best and why it matters. Choosing and developing an identity requires some reflection, where your company can go in the market- what products and services you can offer and to whom – is a function of who you are and what you do well. Companies should only compete in those markets where they believe their identity and distinctive capabilities will give them the edge over their competitors.
2. Translate the strategic into the everyday: In order to achieve its targeted identity, an organisation must create a blueprint of its capabilities. It must integrate diverse processes and technologies while preserving the strategic value of the enterprise.
3. Put culture to work: An organisation’s culture is multidimensional, complex and influential. Most business leaders understand the power of a company’s culture – but it’s not always clear how to harness that culture. A company’s culture should reinforce the distinctive capabilities and strengths that differentiate it from the competition. Africa poses some challenges when it comes to culture, as labour markets usually lack people with the necessary technical skills and relevant industry experience. Consequently, companies have to develop their own talent. Since relying heavily on expatriates is not financially sustainable or positively viewed by African governments, finding local human capital is essential.
4. Cut costs to grow stronger: Coherent companies tend to invest heavily in activities that support their identity and distinctive capabilities. They will need to regard costs as an investment and focus on investing in those areas that are necessary for executing strategy. In middle-income African countries with strong institutions, aspirational customers demand premium products and services – but these need to be delivered at a lower cost point.
5. Shape the future: Coherent companies acknowledge that their value proposition is never fully achieved and their capabilities system should always be open for further progression.
Although the African continent offers much potential for investors, it also carries a number of risks and challenges. “It takes a coherent company to successfully and sustainably close the gap between strategy and execution in Africa. Conventional leadership practices of seeking growth at all costs have resulted in many unsuccessful attempts at penetrating this market.
“Coherent companies, on the other hand, improve the likelihood of successful expansion and strategy execution in one of the fastest-growing regions in the world,” concludes Camarate.