In this article we look at a really common statistic that was popularised with Norton & Kaplan’s approach: the “statistic” that 9 out of 10 of business strategies fail due to poor execution.
Now, I have never believed it. It is attributed to Fortune Magazine in the early 90’s. It is also frequently cited in Balanced Scorecard literature as Norton & Kaplan also refer to the article.
So, in response to a question put on LinkedIn about where it came from and whether it is still true, I want to explain what really lay behind this figure and what it really means. It will help you understand why strategy really fails, and also what Failure means. It will also help you relate the issues to the Balanced Scorecard approach as a systematic strategy execution tool.
Given the Balanced Scorecard approach is now twenty years old, it is worth looking back at the assumptions, myths, and where it has come from: Also where it is now.
Sources of the statistics: Some background
I should explain, I worked for Norton & Kaplan’s Strategic Balanced Scorecard consultancy, Renaissance, back between 1995 & 2000. We did a lot of balanced scorecard work and particularly the balanced scorecard as a tool of strategy execution: what we called, back then, the Balanced Scorecard Strategic Management System.
When we introduced the idea, and the problems we were setting out to solve, we sometimes used a pair of slides that complemented one other. On the first slide we asserted an issue, and on the second slide we asserted how we address the problem. I have simplified the main points on each slide into a single sentence so they make sense as a pair:
- Only 10% of the organisation understand the strategy => You need to translate the vision
- Only 30% of executives have their goals aligned with the strategy => you need to communicate and link the objectives
- Only 60% of organisations align their processes with the strategy => you need an aligned budgeting and planning system
- Executives only spend 2 hours a week discussing strategy => You need an effective feedback and learning system.
- Is it any surprise that 9 out of 10 strategies fail to deliver all their objectives (The Fortune statistic) => you need us to help you fix this (implied of course)
Did Fortune say that 9 out of 10 strategies fail?
Now, the original source for 9 out of 10 figure was Fortune Magazine. Back in 1982, Walker Kiechel wrote an article entitled “Corporate Strategists under fire”, (Fortune 27 December 1982, p38). There he asserted that “fewer than 10 percent of effectively formulated strategies were successfully implemented”. I don’t know about you, but that seems an awfully low figure.
Now, this article is very hard to pin down. Unfortunately that original article is not on the Fortune site. However, Kiechel did write a book that comments on the article. in “The Lords of strategy: A secret intellectual history of the new corporate world” (Harvard Business Press 2012) Kiechel describes how this article is a backlash against the conceptual tools that came with strategy (See pp 172-175). He also says it is against “Seagull consultants” who circle twice, land, deliver a strategy, and leave”. The book is about the rise and influence of strategy consulting firms (eg BCG, McKinsey and Bain) and notable business school professors who contributed theory and concepts to the strategy revolution. In other words, it is about strategy being conceptualised, without thought of execution.
Now you can see why this sort of statistic might apply, in these circumstances. In fact you would expect 10 out of 10 to fail without execution.
In 70% of the cases of strategies failing, it is not bad strategy, but bad execution
This original Fortune article was later followed up in a 1999 Fortune cover story, on prominent CEO failures. It suggested (and note the wording), that “In the majority of cases, we estimate 70%, the real problem isn’t bad strategy, but bad execution.”
However, note that
a) this is an assertion, not evidenced by research, and
b) if they are looking at prominent CEO failures, they are looking at a very biased group of examples. They are saying 70% of these CEOs failed through bad execution, but the rest failed for some other reason.
This is not saying that 70% of all strategies fail! Only that 70% of failed strategies are caused by bad execution – Quite different. Again, in this context the statistic makes much more sense.
Reading in more detail what was actually said….
Page 4 of Kaplan and Norton’s 2008 book, The Execution Premium, says the other four figures come from a Renaissance survey conducted in 1996. (I must admit I thought it was earlier as I thought it was around when I joined. I also remember the first two figures as 5% and 25%. However these are certainly from Renaissance research.)
These figures supported our hypothesis for the wider strategy execution role that we supplied. In other words, the Renaissance research was asserting an explanation for the reasons behind the 9 out of 10 failures than the original Fortune article asserted. That in turn justified our approach and that our help was needed, as a strategic management system.
Notice the “All” in the last sentence, as in “Failed to deliver all their objectives”. This little word is very important, as I’ll explain…
Yet more Renaissance research
While in Renaissance, in 1998, I was also involved in some research we did with Business Intelligence (271 international companies) that also looked at why strategies were failing. (I did a lot of the analysis of the forms and results). In that survey it showed that:
a) fewer goals (less that 3) indicated a much higher likelihood of success.
b) a clear path to achieve goals, increase significantly the likelihood of achievement (also if the number was less that 3)
c) Fail to have the strategy execution pieces in place, or too many goals, and you will be more likely to fail to deliver (Note the “more likely“).
(There were other pieces as well)
So the message that we put across, was not “9/10 strategies fail” but that “9/10 strategies fail to achieve all their original goals”. Note the “all” again!
It is about a strategy not fully achieving all of its goals
A careful reading of page 3 of “The Execution Premium” suggests the same. It says, “…various surveys over the past two decades suggest that 60 to 80 percent of companies fell far short of the targets expressed in their strategic plans”. In other words, companies fell short of their goals. Not that the strategy failed: just that it was not as successful as they would have liked.
So the statement “9/10 strategies fail” should more correctly be, “up to 9/10 strategies fail to achieve all their goals”.
This is a really important distinction in my mind. Is a failure to achieve all your goals, always a failure of the strategy – I don’t think so. The strategy might be being successful, but not quite as quickly, or as much, as you hoped for. You may have achieved some of your goals, but not have been as successful as you would have liked, as quickly as you would have liked. Despite this the strategy might still have been successful (or not).
Subsequent research: Over ambitious goals
This is what Mankins and Steele also seem to be saying in a 2006 HBR article. They say, “Our research suggests that companies on average deliver only 63% of the financial performance their strategies promise.” This isn’t pure strategy execution, however, just financial performance.” They achieved only 63% of their financial ambition. This might be an issue of poor strategy, poor execution or over-ambition, or things changing. It might be that the non-financial ambitions are yet to yield the results.
Now having one time in a sector where I saw 10 business plans for 10 different organisations, I can a test to one thing: if all of the assumptions in those plans were true, then the sector was due to grow 25-30%. In reality, the building society market (for that it was it was) grew around 2-5%. In other words all these executives were optimistic (or ambitious) about their own growth is a reasonably stable market. All under-performed against their goals. Were their strategies working. broadly yes, but they were simply not delivering anything significantly different against their competitors and peers.
In a global survey by Monitor, 2006, asking executives about their priorities, Strategy execution came out first and third on their list. Kaplan & Norton cite other surveys over two decades that “indicate that 60-80 per cent of companies fall short of the targets expressed in their strategic plans”
So we can expect that organisations might not quite achieve their goals, though their strategy could still be working.
Having a formal strategy execution system
In 1996 Kaplan & Norton produced a follow-up survey to their 1996 survey. Still 46% did not have formal systems to execute their strategy,; Of these, 73 percent reported average to below-average performance of their strategies, backing up the survey results from 1996.
However of the %54% that did report having a format strategy execution system, 70% reported they were out-performing their peer group.
In other words, having such systematic, formal systems, such as the balanced scorecard strategic management system, dramatically increases the odds of strategy execution being successful and for out performing your peers. This indeed is their premise for “The Execution Premium”.
Twenty years on, what is the issue today?
Let us be frank: this debate about which of strategy choice, or strategy execution, is most important, is a 20 year old debate. What is the issue today?
Well, I believe it is about strategy decisions and strategy execution being an iterative, continuous process. Strategy can no longer be a piece done in isolation, after which execution occurs. Strategy and execution must work together.
Strategy execution must be a process from which lessons about the strategy, intentions and ambitions are learnt and they are then refined. Strategy is a continuous learning process informed by execution.
Also strategy must be created and implemented much faster. Sure, examine the market, check the context, test the environment, but take some action and see if it you ideas are working or not. Then revise them.
The Excitant Fourth Generation Balanced Scorecard now treats strategy and execution as a continuous learning process: the only question is, how quickly do you want to move around the loops testing and revising your strategy? You can find out more about executing strategy quickly, as a learning process, in our articles about the Excitant Fourth Generation Balanced Scorecard Approach.
These insights behind the statistics explain why you might not easily find research to support the 9/10 statement as bluntly as it is so often asserted. Because the assertion is too simplistic and NOT what was originally intended. It is more subtle and nuanced than that. Stark, headlines sound good, but don’t tell the whole truth.
They also suggest that formal strategic management systems do help with a more reliable strategy execution, and the achievement of a strategy that has a few key goals.
I also draw a number of conclusions about the research
- Research, statistics and assertions are often used out of context for their impact, rather than accuracy. Even when cited correctly, the nuance of the message is often lost.
- Even thought the hype exaggerates the issue, there is a deeper truth, that strategies do fail due to poor execution.
- Simplification, leads to mis-understanding. This is true with the balanced scorecard approach itself, as well as with research and assertions.
- The Balanced Scorecard, used as a tool of strategy execution, is a powerful tool. BUT you need, as we always did, to diagnose what the underlying problems actually are, and then apply the specific parts or emphasis of the approach, to the particular problem. This is why we run diagnostics BEFORE we decide which particular emphasis and approach to use with a client. It saves time and money, and gets better results.
If you are considering your strategy and its execution, and want to ensure to execute it reliably, (and deliver those promised goals) then get in touch.