As cliche as it sounds, “talk is cheap” extensively explains the degree of inertia that accompanies planning. A similar fate befalls several strategic managers as they encounter numerous failures with their plans. In other words, strategic planning mostly appears impressive in theory but problematic in practice.
On average, 67 to 97 percent of business strategies fail, leaving most establishments with minimal success. Most failed business strategies will likely cause business failure within the first five years of existence. The high percentage of failure stems from the execution or implementation as the energy dwindles progressively from the creative process to the execution stage of strategic management.
A business strategy is an overarching plan that guides a company’s direction and helps it to achieve its desired outcomes. The purpose of a business strategy is to set the overall course for the company and provide guidance on how to allocate resources in order to achieve specific goals.
Despite the importance of having an effective business strategy, research suggests that 67-97% of them fail. There are two main reasons for this: first, companies often adopt strategies that are not well suited to their unique circumstances and secondly, even when companies do have the right strategy for their situation, they often fail to execute it effectively.
Why 67 to 97 Percent of Strategies Fail.
A huge percentage of strategic plans fail, affecting the survival rate of new businesses because of the difficulty with implementing strategies compared to formulating or creating them.
According to a regular survey conducted on the challenges with strategic management, about 73 percent of business owners affirmed that strategy implementation accounted for a huge percentage of failed strategies.
Also, 72 percent claimed the formulation process was time-consuming, and 82 percent opined that the rising rate was due to arbitrary factors for which the entrepreneur had little control.
According to the United States Bureau of Labor Statistics, more than half of new businesses fail in their first year, and about 20 to 45 percent of such companies fail within two to five years.
Here is a table showing a LendingTree analysis of a ten-year speculative percentage failure rate of most new businesses, taking the United States as a case study.
| Business Duration | Business Percentage Failure Rate |
| Within one year of business | 18.4% |
| After two years of business | 30.6% |
| After three years of business | 37.9% |
| After four years of business | 44.5% |
| After five years of business | 49.7% |
| After six years of business | 53.6% |
| After seven years of business | 56.8% |
| After eight years of business | 60.5% |
| After nine years of business | 63.4% |
| After ten years of business | 65.5% |
The high percentage of failing strategies is due to most entrepreneurs’ diminishing commitment to implementation—the essence of a well-crafted business strategy is in its execution.
Now that you know what percentage of strategies fail, here are some reasons.
When There Is Little Interest in the Process Execution
Strategies are meant to be executed. Unfortunately, many establishments carry out strategic planning as a theoretical or academic exercise just for the mental situation it brings.
As a result, most strategies remain on paper covered by dust without being implemented.
Here are possible reasons for the little to no interest in strategic planning:
- Most entrepreneurs perceive strategy planning to be time-consuming.
- When the strategy seems complex and difficult to understand, implementation becomes difficult.
- Some plans appear not to match the company’s overall long-term goals.
- Execution becomes a problem when the methods are not up-to-date on current trends.
When There Is a Significant Lack of Strategic Awareness
Sometimes, the organizational managers appear to be the only ones who significantly understand the plan. According to a Harvard Business Review, below five percent of employees understand the company’s strategic goals.
As a result, there is increased inertia since a greater proportion of the workforce is crippled by a lack of strategic awareness and understanding. In other words, execution becomes impossible due to a lack of understanding.
Additionally, this lack of strategic awareness increases when the company outsources its strategic management, leaving the organization’s leaders with a knowledge gap. The implication is that the establishment will have no one to direct the affairs toward realizing the company’s long-term goals and objectives.
What Makes It Challenging to Plan a Strategy?
Getting right with strategic planning seems impossible due to a few misconceptions, and in this section, we will examine two limiting thoughts to getting strategic planning right.
When You Consider Strategies Only in the Present
The ideal strategic planning consideration is long-term, allowing you to sample several choices during the formulation stage. However, investing so much time trying to fuse several goals and activities into one means of execution is risky. The reason is that it can discourage members over time by reducing organizational enthusiasm toward implementation.
Harboring Several Idealistic Thoughts
Over idealism limits realism, progressively reducing your objectivism during the formulation stage. Unfortunately, when your plans are more idealistic than realistic, they can be pretty challenging to execute.
What Are Some Disadvantages Leading to a High Percentage of Strategy Failure?
Most strategies fail because managers can hardly overcome the drawbacks of the process and see the plan through toward execution.
Here are a few disadvantages of the process that lead to a high percentage of failure.
Process Complexity
The demand for continuous evaluation and appraisal of factors such as the company’s external and internal environment, organizational goals and objectives, structure and process control creates a bit of a hassle, making the entire process complex.
Additionally, the complexity continues to increase as the factors requiring continuous evaluation are somewhat interrelated, like a chain reaction. As a result, a problem with one aspect somehow affects the stability of the elements under assessment.
For instance, if a firm decides to scale up the prices of products to increase revenue (company goal), inflation and the high cost of raw materials (external environment) will negatively affect the company budget for raw materials (internal environment). As a result, the firm has to review its procurement policy and resource allocation to create an inner balance.
These urgent actions can alter the firm’s management systems and program and process control, all of which affect the overall decision of the company, making it complex.
Unnecessary Time Consumption
The amount of time required to create operational strategies can be incredibly time-consuming due to massive research like market analysis, SWOT analysis, etc. The time invested in research and analysis can significantly rob the firm’s managers of reasonable time to oversee the daily running of the firm.
The downside is that several situations go unattended, reducing the overall outcome and output of the organization.
Implementation Difficulty
It can be challenging to achieve perfect internal communication, especially when dealing with a large firm which makes implementation difficult.
Also, implementation requires the active participation of organization members as it is a collective process. So, when there is little or no personnel support, probably due to limited understanding of the process, implementation becomes challenging.
The Need for Skilful Planning
Strategic planning requires top-notch skills to cover several uncertainties. The reason is that the plans are designed to be proactive, anticipating the company’s future outcome and planning. Therefore, managers require a futuristic and long-term mindset for proper planning. Sadly, not everyone is that skilled at developing contingency plans.
How To Achieve Strategic Success in Business
Create a Framework
Frameworks allow you to concentrate on the right tasks at the right time. For instance, setting your key performance indicators, objectives and results, etc., is vital in planning your business year.
Therefore, it is best to have a metric for measuring your desired outcome before the process begins. This way, you know what to expect from your team and can get everyone actively involved.
Allow Collective Ownership of the Plan
Creating a plan in isolation constitutes a disadvantage for the company and the leaders as it requires extra effort to get the whole team on board. Instead, organizational members are more likely to get actively involved when they share a sense of ownership.
As a result, the company can easily achieve better execution when everyone feels accountable for the plan’s progress. Additionally, a shared mentality creates more opportunities for team members to develop leadership skills to maximize your company’s human resources.
Keep Company Goals As Open as Possible
Even though strategic management is a job fitting for the firm’s leadership, there are more chances of recording considerable success when the company goals and objectives are kept open.
The reason is that members, when aware of the expected outcome, are more likely to engage in realizing the dreams actively. In addition, when everyone is aware of their expected duties and responsibilities, it creates a healthy environment for transparency and accountability.
How a Successful Strategy Formulation Leads to Successful Execution
Successful execution is the effect of a successful strategy formulation, which reduces the percentage of failed strategies. Also, a successful strategy sets an organization up for long-term success. However, the formulation stage requires maximum attention to avoid adding to the rising percentage of failed approaches.
Essentially, strategy formulation uses available and collected data to chart the course of an establishment, including the action plans necessary to achieve expected goals and objectives. It is the creative aspect of business creation involving the schematics for resource allocation and management, goal alignment and process evaluation and appraisal.
When your organization’s strategy doesn’t fail, you create a perfect workflow where team members share the same vision for actualizing a unified outcome.
Here are methods for formulating a successful strategy for eventual execution.
Begin the Formulation Process With a Purpose
Deciding the purpose or essence of your organization is pivotal to formulating an executable strategy. The reason is that it gives the ultimate direction to the organization’s members.
For instance, your company’s purpose could be building an eco-friendly company, dominating the market with cost leadership, etc. It is a guaranteed way to secure the vision of your establishment through an actionable mission.
Run Your Formulation With Ample Knowledge of Current Trends
Formulating your approach without knowing what trends in society and the industry can be very limiting. An excellent method is to keep up with the news, social trends and market trends to keep your organization at a knowledge advantage. It is easier to execute a strategy when you are armed with sufficient information.
An excellent example is how most organizations quickly adjusted to remote working and the gig economy due to the COVID-19 pandemic. Running your organization on current trends requires ample supply or access to data. So, you need data both inside and outside your establishment.
Here is what we mean!
You can’t base your analysis and speculation exclusively on external events to avoid creating a lopsided action plan. Instead, it would be best to correlate what happens outside with what happens inside your organization.
For instance, while you analyze market changes, you should also evaluate your company’s competitive advantage through a SWOT analysis or review your financial statements, budget and available resources to enable you to create SMART goals and objectives.
In essence, how your establishment responds to sudden changes in society affects the execution of your plans.
Set SMART Goals With Effective Communication
Successfully executing a strategy requires the collective effort of all members of the organization, but how can the organization have a successful execution when about 95% of its employees have little understanding of where the company is headed?
Therefore clear and explicit communication is vital for strategic execution irrespective of how formidable the formulation was. SMART goals are easier to understand because the acronym provides an easy approach to effectively communicating the essence of the company goals to all team members.
This way, employees feel more empowered to execute plans to actualize the big picture. As a result, the organization becomes well insulated against circumstances beyond human control.
Consider All Strategic Formulation in the Progressive Sense
One of the critical problems of execution is that most business owners consider their strategies a one-time formulation. Although the schematics of an approach give the illusion that it is permanent, the actuality is quite the opposite. The reason is that business is a dynamic endeavor.
As a result, your strategy requires constant review, evaluation and appraisal, allowing you to adjust it to suit the changing times easily.
For instance, it is disadvantageous not to adopt remote approaches to work and telecommuting when there is so much explosion in the gig economy owing to the “new normal” resulting from the Covid-19 pandemic.
Therefore, every establishment should periodically review its business approach to ensure that it affords the practical organization enablement to compete with other establishments no matter what new changes occur.
What Is the Problem With Strategy Execution?
Formulating a great strategy isn’t all there is to successful execution, which is why the percentage of failed systems continues to increase. Therefore it is essential to understand certain unassuming causes of failed strategic implementation.
Here is a list of those underestimated problems most organizations face that prevent well-formulated strategies from being executed.
- Internal communication problems
- Insufficient available resources
- Classified actions
- Formulating too many strategies and KPIs
- Ambiguous tactics
- Infrequent evaluation and appraisal
- Unclear vision and mission, etc.
Are Business Strategies the Same As Tactics?
There is a common tendency to confuse business strategy with tactics, perhaps because both terms originated in ancient military schemes. However, there is a slight difference, especially in business management.
Here is how!
| Business Strategies | Business Tactics |
| They are organizational action plans. | They are active organizational steps to the action plans. |
| They exist to oversee larger company decisions. | They exist to execute specific actions. |
| They are more concerned with long-term goals and objectives. | They are more concerned with short-term goals and objectives. |
| They are futuristic. | They function in the present moment. |
Frequently Asked Questions
Are Strategic Plans Effective?
Strategic plans are effective for tracking organizational progress toward actualizing its long-term goals. They also facilitate the practical understanding of key performance indicators, allowing team members to execute every corporate plan effectively.
What Makes Business Strategies Successful?
Business strategies are regarded as successful when they fulfill execution. As a result, regular evaluation is key for ensuring that the process suits the current times and can withstand sudden external changes that might affect the normal operations of the establishment.
Why Do Certain Plans Fail?
Individual pans fail when the organization leaders fail to evaluate and review them periodically. Since business frequently changes due to unpredictable market forces such as the forces of demand and supply or government policy, failure to adjust your plans to fit the changing times leads to their ultimate failure.
Can Having Multiple Strategies Increase the Success Rate for Businesses?
Having multiple business strategy options can indeed increase the success rate for businesses. By diversifying tactics, companies can adapt to changing market conditions and customer preferences. By being prepared with various approaches, businesses can increase their chances of achieving their goals and staying ahead of the competition.
Final Thoughts
As the CEO or manager of a company, it’s important to be aware that business strategies fail 67% to 97% of the time. This number should motivate you to continuously improve your strategy and not give up when faced with adversity.
The main difference between a successful and unsuccessful business strategy is whether it achieves its intended goal.
Many factors can contribute to a failed strategy, such as unrealistic objectives, poor execution, inadequate resources, misalignment with corporate culture, etc.
To increase the chances of success, managers should carefully consider all of these factors before implementing any new strategic initiative.
Even though there is a considerable increase in the percentage of failed strategies, a reasonable number of establishments survive the rigors of the first five years in business, thanks to advances in business and strategic management.
Therefore, a clear understanding of the strategic formulation and execution dynamics gives your company an advantage.
By understanding what makes a successful strategy, you can increase your chances of success while also being prepared for bumps in the road.
A valuable Link to a chart illustrating why entrepreneurs are discouraged from starting their own business due to strategic complexities and problems with execution. https://www.lendingtree.com/content/uploads/2021/06/barriers.png
Sources
On average, 67 to 97 percent of business strategies fail
https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.1001.6107&rep=rep1&type=pdf
https://www.researchgate.net/publication/264004530_Strategy_implementation_What_is_the_failure_rate
https://hbr.org/2017/11/executives-fail-to-execute-strategy-because-theyre-too-internally-focused
Here is a table showing a LendingTree analysis of a ten-year speculative percentage failure rate of most new businesses, taking the United States as a case study.
https://www.lendingtree.com/business/small/failure-rate/
https://www.investopedia.com/financial-edge/1010/top-6-reasons-new-businesses-fail.aspx
