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.
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StrategyShortfall:GrowthPlansFocusonNear-Term
TheStrategyConfidenceGap:
ResultsFromOurSurveyonStrategicReadinessandDisruptiveChange
ExecutiveSummary
Disruptivechangeisaccelerating,drivenby therapidemergenceofnewtechnologies,theblurringoflinesbetween industries,andcompetitionfrombothtraditionalandnontraditionalplayers.As a result,corporate lifespansare shrinking.Onaverage,a companydropsoutoftheS&P 500listandisreplacedonceeveryfew weeks.Ifcurrenttrends hold,about75%ofcompaniesontoday’slistwillfadeawayorgetacquiredby 2030.1
Howdoestheshiftinglandscapeaffectenterprisestrategyandcorporate innovationefforts?Toseehoworganizations assesstheirabilitytoanticipateandrespondtodisruptivechange,werecentlysurveyedmorethan800 executives across20industries.Theresultsshednewlightontothechallengesandopportunitiesthatleadersfaceincrafting strategiestosteertheircompaniesinboththenearandlongterm.Top-levelfindingsinclude:
•Fully85%ofrespondentssaytheirorganizations needtotransforminresponsetodisruptivechange–yetonly
49%saythatfeel veryconfidentorconfidentthattheirorganizations arepreparedfortransformationin3to5 years.Thatnumberdropsto42%ina timeframeof5to10years.
• Largecompaniesfaceanevengreater“strategyconfidencegap.”83%ofrespondentsfromcompanieswithover
$1billioninrevenueagreedwiththeneedtotransform,andonly36%saytheyareconfidenttodosoina 5to10
yeartimeframe.
Theconfidencegapsuggeststhatorganizations lackboththelong-termorientation andthetoolstoplotlong-term strategy.Thesurveyborethisout:
• Only12%oforganizations havea formalgrowthstrategywithatleasta 5+yeartimehorizon.
•Theremaining88%eitherhavenoformalgrowthstrategyoritisshorterterm.
Thisshort-termbiashasimplicationsfortheabilityofcompaniestodevelopdisruptiveortransformational innovations—thekindthatopennewmarketsandattractnewcustomers—andwhichtypicallyrequirea longer-term perspective.
The Confidence Gap:The Desire–ButNottheAbility–toTransform
Transformationcanbedefinedaschangingyourcore productofferingsorbusinessmodelovertime.An exampleishowIBMovera periodof15yearsreshaped itscomputerhardwarebusiness—whichfacedsevere disruptionanddecline—whileitscaledupitsservices businesstobecomea majorityofitsrevenue.Theresult isa transformedandhighlysuccessfulenterprisethat doesn’tlookliketheoldIBM.
Anoverwhelmingmajorityofrespondentsagreedonthe needfortransformation,withabout85%statingthatthey agreeorstronglyagreethattheirorganizationneedsto transform.Amonglargeenterprises(thosewith$1billion ormoreinrevenue),theresultwasaboutthesame,83%.
Wealsoaskedexecutives“howconfidentareyouthat yourorganizationispreparedtochangeinresponseto disruptivetrends?”Weposedthequestionoverdifferent timeframestoseeif theirconfidencelevelsincreasedor decreasedovertime.Amongallrespondents,42%were “veryconfident”or“confident”thattheyarepreparedto transformwithina 5to10yeartimeframe.Thatpercent- agewasjust36%percentamongrespondentsatlarge
enterprises.Asignificantpercentage(27%)ofthoseatbig companiessaidtheyare“notatallconfident.”
Individualresponsesrevealeda rangeofreasonswhy theprospect oftransformationissochallengingatlarge enterprises.“Wehavetheinformationbutnottheimpe- tus,”saidoneexecutive.Anothersaidthat“innovationis limitedtosmallchangesinexistingproductlines.”
Only36%ofrespondentsfrom largecompaniessaytheyare confidenttheycantransform theirorganizations5to10years out.
Buttherearesomebrightspots,atleastanecdotally.One executivesaid:“Weareinconstant transformation,and wearetacklingnewtrendsinemergingmarkets.”Said another:“Wehavebeenaggressivelypursuingchange andtrackingthewaythemarketisheadedinorderto positionourselvestobea continuedleader.”
AStruggletoKeepPace:ASenseofFallingBehindtheMarket
AStruggletoKeepPace:ASenseofFallingBehindtheMarket
Thepaceofdisruptivechangecanseemoverwhelmingat times,andstrategicconfidencelevelscouldbeaffected
by howexecutivesperceivetheirorganization’sabilityto keeppacewithshiftsinthemarket.
Toprobemoredeeplyintohowcompaniesassesstheir abilitytochange,weaskeda seriesofquestionsabout
thepaceatwhichcompaniesbelievetheycanrespondto disruptionsandnewgrowthopportunities.Sincemea- suringthepaceofchangewithina companyisdifficult, thesurveyinsteadaskedexecutivestobenchmarktheir organizationagainsttheoverallmarket.
Theresultssuggestthatfeworganizations believethey aremovingfasterthantheircompetitorsortheoverall market.About30%ofcompaniesofallsizessaytheyare “changingataboutthesamepaceas themarket.”Another
30%reportedthattheyare“changingsomewhatslower thanthemarket.”
Butlargeenterprises(again,thosewithover$1billion inrevenues)reportanevenmoredifficulttimekeeping pace,with48%sayingtheyarerespondingtomarket- placedisruptions“somewhatslower”or“muchslower” thanthemarket.Ina relatedquestion,44%saidthatthey arerespondingtonewgrowthopportunities“somewhat slower”or“muchslower”thantheircompetitors.
Only21%ofbigcompaniessaytheyarechanging“much faster”or“somewhatfaster”thantheoverallmarketin responsetodisruptivechange.
Theseresultsshowhowdifficultitistocapturecompeti- tiveadvantageina worldwherecustomerneedsand expectationsoftenshiftatthesamepacethattechnology isadvancing.
Nearlyhalf oflargeenterprises saytheyarechangingmore slowlythantheoverallmarket.
Respondentsraisedbigquestionsabouthowrapid changeaffectstheirfirm’sabilitytocompete:“Howcan wetransformcultureata timewhencustomerexpecta-
tionsareundergoingrapidchange?”askedone.“Howcan weestablishanentrepreneurial cultureina large,risk- averseorganization?”askedanother.
Manyexecutivespointed toculturalissuesattheirorgani- zations:“Wehavehighinstitutionalrigidityandresistance tochange,”saidoneexecutive.“Rapidtechnologychang- es(i.e.mobilityandcloud)areimpactfulbeforetheyare understood,”saidanother.
StrategyShortfall:GrowthPlansFocusonNear-Term
Tounderstandhowcompaniesplanforinnovationand growth,we askedcompaniestodescribethetimehori- zonsoftheirgrowthstrategies.
Asurprisinglylowpercentageoforganizations reported havinga long-termstrategyforgrowth.Accordingtoour survey,only12%oforganizations havea formalgrowth strategywithatleasta 5+yeartimehorizon.
Theremaining88%saytheyeitherhavenogrowthstrat- egyorthatit’sshorterterm,witha full29%sayingthey haveonlyaninformalgrowthstrategy.
Oneseniorleaderwhounderstandstheimportanceof investinginlong-term,newgrowthbusinesses—thekind thattypicallyrequirefiveortenyearstopayoff—isJeff BezosofAmazon.com
Bezosrecentlyshoweda conceptvideoofunmanned dronesdeliveringpackagestodoorsteps.Whenpressed howlongitwouldtaketogetthere,hesaidmorethan fiveyears.Whiledronesmayseemlikea far-outideafor aretailbusiness,thatkindofinnovationandstrategy horizonisnodifferentthanthemanyotherdisruptive
venturesthatAmazonhasinvestedinandlaunchedover itshistory.Forinstance,thecompanyisnowa dominant forceincloudcomputingservices,eventhoughthat businesswasa non-coreareafiveyearsago.
As Bezosexplainedrecently,“Thelong-termapproach is rareenoughthatitmeansyou’renotcompetingagainst verymanycompanies.Mostcompanieswanttoseea returnoninvestmentin,one,two,threeyears.I’mwilling forittobefive,six,sevenyears.So,justthatchangein timelinecanbea verybigcompetitive advantage.”
“Thelong-termapproachisrare enoughthatitmeansyou’renot competingagainstverymany companies.”
–JeffBezos,CEOAmazon.com
Whenorganizations lacka long-termstrategythatguides day-to-daywork,executivescanoftenexperiencefrustra- tion.Acommonsetofstrugglesaresuggestedby these statementsfromrespondents:“We’rekeptintheshort- termfocustrap,”saidone.“Puttingoutfiresisourmain challenge,”saidanother.
Insomecases,changesinleadershipcanresultinaban-
doninglong-termstrategies.“Agoodstrategicplanwasdevelopedtwoyearsago,butthentheexecutive changed,andhedidn’tseethevalueintheexistingstra- tegicplan. Theresult: demoralization,nonewideas,no strategicfocus,conflict,lowperformance.”