Every year the top management at many companies spend months for developing strategies. Years later the performance of the company is nowhere near what the plan had projected. Often leaders think that the execution failed, but in most cased they need a better strategy to stop their underperformance. To close this so called “strategy-to-performance-gap” disciplined planning and execution processes are needed. In the fall of 2004 Marakon Associates surveyed companies translating their strategy into performance to analyze the most common causes and actions in closing the strategy-to-performance gap.
In less then 15% of the analysed companies business results reached the performance plans, what offers the risk to embed the same disconnect between results and forecast in their future decisions. Companies do multiyear performance projections what creates the venetian blind phenomenon, including 3 problems. First, financial forecasts are unreliable; second, portfolio management gets derailed and the third problem is the communication with the investment community.
Because of the poor forecast quality most on average strategies deliver only 63% of their potential financial performance, loosing performance by inadequate resources (7,5%), poorly strategy communication (5,2%) or the missing of clearly defined actions to execute (4,5%).
The Essay on Different Strategies Companies
Companies use strategies like sex appeal, youth appeal, and humor in their billboards, commercials, posters, etc. to attract their customers. Clothing designers, automobile companies, and toy makers all use some of those strategies in some way. These types of companies have many of the same strategies used in their advertising. Clothing designers have billboards, commercials, and posters that ...
Because of the difficult process to develop plans, allocate resources and track performance the top management doesn’t discern whether the gap is a result of poor planning, poor execution or both.
They don’t know whether critical actions were expected, resources deployed on schedule, competitors respond as anticipated, so it’s impossible to take appropriate corrective action. The problem of a company creating unrealistic plans, which will not be fulfilled is a culture of underperformance, because it becomes the norm that performance commitments won’t be kept. As a consequence closing this strategy-to-performance gap is the only way to realize more of the strategical potential, following these seven rules at planning and execution:
Rule 1: Keep it simple and make it concrete – use a clear language describing the course of action that everyone is clear about what the strategy is and isn’t, headed in the same direction. Rule 2: Debate assumptions, not forecasts – a fact-based discussion lead to the result, that units can’t hide behind details and corporate centers executives can’t push for unrealistic goals. Rule 3: Use a rigorous framework, speak a common language – each unit assesses what share of profit pool it can realistic capture, given its business model and positioning. The framework establishes a common language that all teams understand and use.
