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Thursday, June 19, 2014

What's Creating the Strategy "Confidence Gap"? 06-19


What's Creating the Strategy "Confidence Gap"?



The results of our new survey show that organizations lack the tools and the long-term orientation to craft meaningful growth strategies.
Disruptive change is accelerating, driven by the rapid emergence or new technologies, the blurring of lines between industries, and competition from both traditional and nontraditional players. As a result, corporate lifespans are shrinking. On average, a company drops out of the S&P 500 list and is replaced once every few weeks. If current trends hold, about 75% of companies on today's list will fade away or get acquired by 2030.
How does the shifting landscape affect enterprise strategy and corporate innovation efforts? To see how organizations assess their ability to anticipate and respond to disruptive change, we recently surveyed more than 800 executives across 20 industries. The results shed new light onto the challenges and opportunities that leaders face in crafting strategies to steer their companies in both the near and long term.
Top-level findings include:
  • Fully 85% of respondents say their organizations need to transform in response to disruptive change--yet only 49% say they feel very confident or confident that their organizations are prepared for transformation in 3 to 5 years. That number drops to 42% in a time frame of 5 to 10 years.

  • Large companies face an even greater "strategy confidence gap." 83% of respondents from companies with over $1 billion in revenue agreed with the need to transform, and only 36% say they are confident to do so in a 5 to 19 year time frame.

The confidence gap suggests that organizations lack both the long-term orientation and the tools to plot long-term strategy.

The survey bore this out:

  • Only 12% of organizations have a formal growth strategy with at least a 5+ year time horizon.

  • The remaining 88% either have no formal growth strategy or it is shorter term.

This short-term bias has implications for the ability of companies to develop disruptive or transformational innovations—the kind that open new markets and attract new customers—and which typically require a longer-term perspective.



The Strategy Confidence Gap:
Results From Our Survey on Strategic Readiness and Disruptive Change


Executive Summary

Disruptive change is accelerating, driven by the rapid emergence of new technologies, the blurring of lines between industries, and competition from both traditional and nontraditional players. As a result, corporate  lifespans are shrinking. On average, a company drops out of the S&P 500 list and is replaced once every few weeks. If current trends hold, about 75% of companies on todays list will fade away or get acquired by 2030.1

How does the shifting landscape affect enterprise strategy and corporate  innovation efforts? To see how organizations assess their ability to anticipate and respond to disruptive change, we recently surveyed more than 800 executives across 20 industries. The results shed new light onto the challenges and opportunities that leaders face in crafting strategies to steer their companies in both the near and long term. Top-level findings include:

Fully 85% of respondents say their organizations  need to transform in response to disruptive change yet only
49% say that feel very confident or confident that their organizations  are prepared for transformation in 3 to 5 years. That number drops to 42% in a time frame of 5 to 10 years.

 Large companies face an even greater strategy confidence gap. 83% of respondents from companies with over
$1 billion in revenue agreed with the need to transform, and only 36% say they are confident to do so in a 5 to 10
year time frame.

The confidence gap suggests that organizations  lack both the long-term orientation  and the tools to plot long-term strategy. The survey bore this out:

 Only 12% of organizations  have a formal growth strategy with at least a 5+ year time horizon.

The remaining 88% either have no formal growth strategy or it is shorter term.

This short-term bias has implications for the ability of companies to develop disruptive or transformational innovations—the kind that open new markets and attract new customers—and which typically require a longer-term perspective.

The Confidence Gap: The Desire But Not the Ability to Transform




Transformation can be defined as changing your core product offerings or business model over time. An example is how IBM over a period of 15 years reshaped its computer hardware businesswhich faced severe disruption and declinewhile it scaled up its services business to become a majority of its revenue. The result is a transformed and highly successful enterprise that doesnt look like the old IBM.

An overwhelming majority of respondents agreed on the need for transformation, with about 85% stating that they agree or strongly agree that their organization needs to transform. Among large enterprises (those with $1 billion or more in revenue), the result was about the same, 83%.

We also asked executives how confident are you that your organization is prepared to change in response to disruptive trends?” We posed the question over different time frames to see if their confidence levels increased or decreased over time. Among all respondents, 42% were very confident or confident that they are prepared to transform within a 5 to 10 year time frame. That percent- age was just 36% percent among respondents at large


enterprises. A significant percentage (27%) of those at big companies said they are not at all confident.

Individual responses revealed a range of reasons why the prospect  of transformation is so challenging at large enterprises. We have the information but not the impe- tus, said one executive. Another said that innovation is limited to small changes in existing product lines.

Only 36% of respondents from large companies say they are confident they can transform their organizations 5 to 10 years out.
But there are some bright spots, at least anecdotally.One executive said: We are in constant  transformation, and we are tackling new trends in emerging markets. Said another: We have been aggressively pursuing change and tracking the way the market is headed in order to position ourselves to be a continued leader.

A Struggle to Keep Pace: A Sense of Falling Behind the Market




The pace of disruptive change can seem overwhelming at times, and strategic confidence levels could be affected
by how executives perceive their organizations ability to keep pace with shifts in the market.

To probe more deeply into how companies assess their ability to change, we asked a series of questions about
the pace at which companies believe they can respond to disruptions and new growth opportunities. Since mea- suring the pace of change within a company is difficult, the survey instead asked executives to benchmark their organization against the overall market.

The results suggest that few organizations  believe they are moving faster than their competitors or the overall market. About 30% of companies of all sizes say they are changing at about the same pace as the market. Another
30% reported that they are changing somewhat slower than the market.

But large enterprises (again, those with over $1 billion in revenues) report an even more difficult time keeping pace, with 48% saying they are responding to market- place disruptions somewhat slower or much slower” than the market. In a related question, 44% said that they are responding to new growth opportunities somewhat slower or much slower than their competitors.


Only 21% of big companies say they are changing much faster or somewhat faster than the overall market in response to disruptive change.

These results show how difficult it is to capture competi- tive advantage in a world where customer needs and expectations often shift at the same pace that technology is advancing.

Nearly half of large enterprises say they are changing more slowly than the overall market.

Respondents raised big questions about how rapid change affects their firms ability to compete: “How can we transform culture at a time when customer expecta-
tions are undergoing rapid change?” asked one. “How can we establish an entrepreneurial culture in a large, risk- averse organization?” asked another.

Many executives pointed  to cultural issues at their organi- zations: We have high institutional rigidity and resistance to change, said one executive. Rapid technology chang- es (i.e. mobility and cloud) are impactful before they are understood, said another.


Strategy Shortfall: Growth Plans Focus on Near-Term



To understand how companies plan for innovation and growth, we asked companies to describe the time hori- zons of their growth strategies.

A surprisingly low percentage of organizations  reported having a long-term strategy for growth. According to our survey, only 12% of organizations  have a formal growth strategy with at least a 5+ year time horizon.

The remaining 88% say they either have no growth strat- egy or that its shorter term, with a full 29% saying they have only an informal growth strategy.

One senior leader who understands the importance of investing in long-term, new growth businesses—the kind that typically require five or ten years to pay off—is Jeff Bezos of Amazon.com

Bezos recently showed a concept video of unmanned drones delivering packages to doorsteps. When pressed how long it would take to get there, he said more than five years. While drones may seem like a far-out idea for a retail business, that kind of innovation and strategy horizon is no different than the many other disruptive
ventures that Amazon has invested in and launched over its history. For instance, the company is now a dominant force in cloud computing services, even though that business was a non-core area five years ago.


As Bezos explained recently, The long-term approach  is rare enough that it means youre not competing against very many companies. Most companies want to see a return on investment in, one, two, three years. Im willing for it to be five, six, seven years. So, just that change in timeline can be a very big competitive  advantage.

The long-term approach is rare enough that it means youre not competing against very many companies.
Jeff Bezos, CEO Amazon.com

When organizations  lack a long-term strategy that guides day-to-day work, executives can often experience frustra- tion. A common set of struggles are suggested by these statements from respondents: Were kept in the short- term focus trap, said one. Putting out fires is our main challenge, said another.

In some cases, changes in leadership can result in aban-
doning long-term strategies. A good strategic plan was developed two years ago, but then the executive changed, and he didnt see the value in the existing stra- tegic plan. The result: demoralization, no new ideas, no strategic focus, conflict, low performance.