Why Do So Many Strategies Fail?

Many business failures, from struggling startups to disrupted established firms, stem from a non-holistic approach to strategy. Leaders often excel in one area, such as identifying opportunities or building competitive advantages, but neglect other crucial components or fail to recognize their interdependencies. A complete strategy must coordinate choices about the business model, competitive position, implementation processes, and long-term capabilities.

A complete strategy involves several coordinated actions: 1) Identifying opportunities by continuously monitoring external developments (technology, demographics, etc.); 2) Defining the best way to leverage an opportunity by developing a business model that creates maximum value, including a 'job to be done' for customers, asset configuration, and monetization method; 3) Capturing near-term value by designing a strong competitive position, assessing industry attractiveness, competitive positioning, and competitive interaction; and 4) Realizing value over time by constantly adapting implementation and building new capabilities, and 5) Building a foundation for long-term success through sustained financial performance that enables future moves. This process should be continuous and iterative.

Established companies often err by focusing too much on how to capture value and too little on new ways to create value, or how their activities and capabilities need to evolve. While traditional approaches like Porter’s five forces are effective in stable industries, they can hinder the discovery of breakthrough ideas. New business models, driven by digital transformation and data analytics, can create significantly more value, as seen with companies like Komatsu and Siemens shifting from product sales to solution-based services. Incumbents should strategically evaluate the value-creation potential of new models rather than reacting to every emerging trend.

Entrepreneurs, excited by new opportunities, often fail to anticipate that greater value creation attracts more competition, potentially eroding returns. Companies like Netflix and Casper, despite innovative business models, face numerous imitators. It's crucial for new ventures to apply value-capture frameworks, considering industry attractiveness, competitive positioning, and competitive interaction. The electric vehicle industry, for instance, despite its high value creation potential, faces significant challenges in terms of sustainable profitability due to low entry barriers and intense competition, as epitomized by Tesla's struggles with manufacturing efficiency and quality issues.

To realize value over the long term, companies must balance agility and control, enabling project teams to experiment while consistently investing in future capabilities. For established firms, this means supporting incremental but continuous improvement and adapting operational activities strategically. Entrepreneurs, conversely, must avoid frequent, unguided adjustments that undermine capability building. The solution involves a strategic approach where the CEO sets clear boundaries for experimentation, with each project having objective processes, metrics, and cutoff decisions. Control is maintained through adherence to a 'classic' strategy that guides experimental projects and a limited number of CEO-championed, long-term strategic initiatives that build required capabilities.

Edward Jones exemplifies a firm that integrates its strategy across the complete landscape. Despite its strong performance and unique competitive position, environmental changes (fintech, demographics, regulations) have eroded the value of its traditional portfolio management. Rather than altering its core competitive position, Edward Jones is innovating its business model, shifting from transactional product sales to a financial life 'solutions' model. This involves identifying 'must-win battles' in areas like diversity, wealth transfer, and multichannel distribution, which are pursued through projects that support broader strategic initiatives, ultimately recalibrating its business model to create more value for clients while maintaining its competitive positioning. The lesson is that resilient strategy requires integrating business model, competitive positioning, and capability building.