Why Do So Many Strategies Fail?

The CEO$$s job of crafting a strategy that creates and captures value$$and keeps

realizing it over time$$has never been harder. In today$$s volatile and uncertain world,

corporations that have dominated their markets for decades can be blindsided by upstarts

with radical new business models, miss the boat on emerging technologies, or be

outflanked by competitors that are more adept at shaping consumer preferences. Young

ventures can raise hundreds of millions of dollars, attract tens of millions of customers,

and achieve lofty market valuations, only to collapse when they cannot figure out how to

turn a profit or hold off imitators.

Strategic adaptation must become an ongoing, iterative process of hypothesis,

experimentation, learning, and action.

Today a complete strategy has to encompass carefully coordinated choices about the

business model with the highest potential to create value, the competitive position that

captures as much of that value as possible, and the implementation processes that adapt

constantly to the changing environment while building the capabilities needed to realize

value over the long term. CEOs must develop an approach that integrates all those

elements. To do that, they have to take the following actions:

Identify opportunities.

This involves continually taking stock of what$$s happening in the outside world$$

developments in technology, demographics, culture, geopolitics, disease, and so on that are

the current $$hot topics.$$ These changes and trends open up possibilities for firms to

exploit. The Covid$-19$ pandemic, for example, has sped the growth of many opportunities

in areas from telemedicine and online education to home delivery services.

Define the best way to tap a given opportunity.

To translate an opportunity into strategy, CEOs need to develop a business model that

maximizes the potential value of their offering. The model should describe the $$job to be

done$$ for customers, which affects their willingness to pay for the product or service and

the size of its possible market. The model should also spell out the configuration of the

assets$$technology$,$ distribution channels, and so on$$that will be used to produce and

deliver the offering $($and that determine the cost of doing so$),$ and the monetization

method, or how all this will be paid for. The model will also suggest how the value

produced might be distributed among the players pursuing it $($such as whether a few

winners will reap the lion$$s share because of scale economies or network effects$)$ and key

aspects of possible strategies $($such as whether being a first mover is important$).$

Figure out how to capture the value generated in the near term.

This requires designing a strong competitive position. To do that the CEO has to assess

three things. The first is the industry$$s attractiveness: Regardless of the value created, an

industry will be attractive only if its structure allows participants to earn decent returns.

$($One of the contributions of Michael Porter$$s five forces framework was its insight that not

all industries are created equal.$)$ The second is competitive positioning. Identifying a

unique value proposition for a defined customer group and a distinctive configuration of

activities is still the way to build an advantage that allows you to outperform the industry$$s

average rate of return$$even when others pursue the same business model. $($See $$Can You

Say What Your Strategy Is$?$ HBR$,$ April $2008.)$ The third is competitive interaction: To

assess the sustainability of any advantage, you must predict how interactions among rivals

will play out. Here, behavioral and game theory approaches can be helpful.

Realize value over time.

To keep capturing value, a firm needs to constantly adapt how it implements its strategy$$

adjusting its activities and building new capabilities as the external environment changes.

This typically does not mean the CEO has to reformulate the entire strategy; it$$s more

about making incremental changes to respond to new realities.

Build a foundation for long$-$term success.

The firm$$s strategic choices and its interaction with competitors ultimately determine its

financial performance and, critically, the resources it has to build assets and capabilities

that support future moves.

Developing strategy across the complete landscape isn$$t a linear process; it should be

continuous and iterative. Good performance will allow a firm to refresh and expand its

skills and resources, which in turn will enable it to search for new opportunities and

respond to external change with new strategic choices.

The Incumbent$$s Mistake

CEOs of established companies often pay too much attention to defining how their firms

will capture value and too little to new ways to create value and how firms$$ activities and

capabilities need to evolve over time. One reason is that a