Here is an excerpt from article featured by The McKinsey Quarterly online (January 2011). To read the complete article, check out other resources, obtain subscription information, and sign up for free email alerts, please click here.
* * *
Few companies create strategies that deliver more value than the sum of their business unit parts, but those that do also excel at moving resources and removing barriers.
Source: Strategy Practice
The development of a corporate strategy should amount to more than the aggregation of business unit strategies. The best corporate strategies, in our experience, force a multibusiness company to make clear choices about its portfolio and the allocation of its resources. Yet the results of a recent McKinsey survey show that just one executive out of five says his or her corporation fully addresses strategy in this way. What’s more, more than a quarter of executives at multibusiness companies say their corporations lack a consistent process for developing strategy.
In this survey, we asked executives at multibusiness companies how they approach the development of corporate strategy—the frequency with which they review it and the amount of time they spend on it, the inputs of the process and the resulting activities, the barriers to reallocating resources, and the talent and other management processes they apply to overcome these barriers.
[Note: The online survey was in the field from December 7 to December 17, 2010, and received responses from 2,313 executives around the world, representing the full range of industries, regions, tenures, and functional specialties. Of those, 1,944 respondents are at multibusiness companies and can describe their companies’ process for developing a corporate strategy.]
A small group of 151 respondents emerged who rate their companies’ approaches to strategy development as very effective and also say their profit margins are higher than those of competitors. Executives at companies that are “effective developers of strategy” are twice as likely as their peers to say their companies apply a distinct corporate strategy process (38 percent compared with 18 percent of all other respondents). Furthermore, 97 percent of these respondents view their companies’ processes for developing corporate strategy as consistent, compared with 59 percent of others. Executives also say these companies spend more time developing strategy, review strategies more frequently, and are much better at eliminating barriers to implementation.
Slow and steady doesn’t win
In both the boom of the mid-2000s and the financial crisis that followed, many companies did not (or could not) make critical portfolio choices and trade-offs. This may be why so few—just 19 percent of all respondents to this survey—say their companies have a distinct process for developing corporate strategy (Exhibit 1). Nearly a quarter, however, think their companies should engage in corporate strategy development on an ongoing basis (as opposed to episodically), compared with only 8 percent who say they currently do so (Exhibit 2). The small group of respondents at the effective-developer companies is ahead of the pack: 19 percent say their companies currently review corporate strategy on an ongoing basis.
A similar pattern emerges with regard to the amount of time a company’s senior-executive team actually spends—and ideally should spend—on developing corporate strategy in a typical year. No more than one in seven respondents say their companies’ senior leaders currently spend more than 15 percent of their time on this activity, but nearly three times as many describe that as the ideal time commitment. Among respondents at effective developers, a quarter say senior leaders currently spend more than 15 percent of their time on corporate strategy development.
* * *
To read the complete article, please click here.
About the Authors
The contributors to the development and analysis of this survey include Michael Birshan, a principal in McKinsey’s London office; Renee Dye, a consultant in the Atlanta office; and Stephen Hall, a director in the London office.