Companies Fail because They Don’t Understand Themselves: Study

New Booz & Company research strikes down the notion that misreading, ignoring or de-emphasising the market, customers and other external forces is what gets most big companies into trouble.


Companies have actually become quite good at avoiding these problems. Instead, they get into trouble because they aren’t inward-looking enough and don’t assess themselves in the same unbiased, focused way they do their competitors and the market. As a result, the strategies they develop often fail to center on the company’s most powerful capabilities and its distinctive way of providing value.


These are insights from management consulting firm Booz & Company’s recently completed report, “What Drives a Company’s Success ,” based on a new global survey of more than 700 senior-level executives across several industries, including financial services, technology, manufacturing, energy, electronics, consumer, pharma and automotive.


“What companies seem to be struggling with is that they don’t know themselves well enough,” says Paul Leinwand, Partner at Booz & Company. “They don’t analyse themselves with the same rigor they use to analyse the market, and don’t have an objective view of what they are truly great at doing to guide their strategic decisions.”


When asked which of six strategic issues are most problematic for companies, only 7% chose “ignoring external market forces.” However, 29% said “having too many strategic initiatives that are disconnected”; 27% said “focusing too much on short-term performance improvement and too little on what will create long-term success”; 20% said “not considering whether the company can execute its strategy”; and 11% said “trying to be like others rather than creating a differentiated identity for the company.” In fact, according to a separate Booz & Company survey, 55% of executives admitted to feeling that their company’s strategy will not lead to success.


When asked about challenges related to a company’s identity – the unique thing or things it stands for consistently over time – the biggest one, cited by 43% of the respondents, was actually knowing what that identity is, i.e., “defining their identity and how exactly they are going to add value for their customers.”


Only 36% of executives said their leaders are good at both (a) answering fundamental questions about their company’s strategy and identity and what will lead it to long-term success and (b) keeping the company on track in executing on its strategy.


“What customers need and want, of course, is critically important – but companies usually have that market-driven part well covered,” said Leinwand. “What separates the best performing companies from their less successful peers is how well they understand their identity and capabilities, and how good they are at leveraging those critically important attributes.”


Cesare Mainardi, Chief Executive Officer at Booz & Company, adds: “The most important question that companies need to ask is ‘Who do we want to be? How will we create value for customers in a way that no one else can?’ As long as leaders ignore this fundamental question they will leave substantial value on the table


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