For many managers, the word strategy conjures up thoughts of gigantic PowerPoint decks, binders collecting dust and general confusion. A survey by Roger Martin of the Rotman School of Management found that 67 percent of managers believe their organization is bad at developing strategy. Harvard Business School professor David Collis is even more direct: “It’s a dirty little secret: Most executives cannot articulate the objective, scope and advantage of their business in a simple statement. If they can’t, neither can anyone else.” Martin’s research supports this point: 43 percent of managers cannot state their own strategy.

What seems to be the cause of this lack of performance when it comes to strategy? My research with 500 managers at 25 companies identified five critical strategy challenges. How many of these does your team face?

1. Time. The most commonly cited strategy challenge is time. With more responsibilities and fewer people to handle them, many managers are overwhelmed with activities. While checking lots of tasks off a to-do list each week may foster a sense of accomplishment, activity doesn’t always equal achievement. If the individual tasks aren’t directly related to the strategy, then we may fall into the trap of activity for activity’s sake. When there are lots of things to do, managers feel guilty stopping to take time to think strategically about the business. After all, most performance reviews don’t include a big box for “Thinks strategically for six hours a week,” with the rating of “Exceeds Expectations,” marked in it. When there is a lot to get done, time to think is often the first to go.

2. Commitment. Gaining commitment from others to support and execute the strategy vexes many managers. Often referred to as buy-in, commitment can be challenging for several reasons. If the people expected to execute the strategy aren’t aware of it, or don’t understand it, then commitment will be non-existent. According to a study out of Harvard Business School, a shocking 95 percent of employees in large organizations are either unaware of or don’t understand their company strategies. This finding may be rejected out of hand by some senior leaders, but it’s crucial to find out just how high that percentage is for your group. Another reason buy-in is lacking is because many people don’t understand the reasons behind the strategy and how it will help them achieve their goals. A study of 23,000 workers found that only 20 percent said they under- stood how their tasks relate to the organization’s goals and strategies. If leaders fail to share why the strategies are in place, and don’t take the time to translate them to people’s actual work, the level of commitment will be minimal.

3. Lack of priorities. A great cause of frustration among managers is the overall lack of priorities at the leadership level. When everything is deemed important, it creates an overflowing-plate syndrome. If clear priorities are not established up front, then it becomes difficult for people to determine what they should be working on and why. This lack of priorities prevents people from taking things off of their plate, resulting in the frustration of feeling spread too thin by too many initiatives. A lack of priorities is a red flag that the difficult work of making trade-offs—choosing some things and not others—was not accomplished in setting the strategy. Good strategy requires trade-offs, which in turn help establish priorities by filtering out activities that don’t contribute to the achievement of goals.

4. Status quo. Numerous studies in the social sciences have shown that people prefer the status quo to change. When people change strategy, inevitably they are changing the allocation of resources, including how people invest their time, talent, and budgets. Since strategy involves trade-offs, certain people will be gaining resources and others losing resources. Obviously, those slated to lose resources are going to prefer to keep things they way they are. In leading a revival at Starbucks during his second stint as CEO, Howard Schultz said, “We cannot be content with the status quo. Any business today that embraces the status quo as an operating principle is going to be on a death march.”

5. Not understanding the definition of strategy. Even at the highest levels of organizations, confusion abounds as to what exactly is a strategy. Perhaps due to its abstract nature, strategy tends to mean different things to different people. It’s often confused with mission, vision, goals, objectives, and even tactics. Failure to provide managers with a universal definition of strategy, and clear examples to refer to leaves the term open to interpretation, creating ineffective plans and inefficient communication. To determine the level of understanding in your group, provide each manager with a 3″ × 5″ notecard at your next meeting and ask each person to record their definition of strategy along with an example. Collect the cards, read them aloud to the group, and tally the number that defined strategy in the same way. UCLA professor Richard Rumelt describes the problem this way: “Too many organizational leaders say they have a strategy when they do not. . . . A long list of things to do, often mislabeled as strategies or objectives, is not a strategy. It is just a list of things to do.”

The Importance of Strategy

How many of these challenges does your team face? More important, what are you doing to overcome them? The inability to effectively navigate strategy challenges can have devastating long-term effects on an organization. Research by The Conference Board has shown that 70 percent of public companies experiencing a revenue stall lose more than half of their market capitalization. Additional research attributes the primary cause of these revenue stalls to poor decisions about strategy. While it’s convenient to blame an organization’s failings on external factors such as the economy, decisions about strategy account for failure a whopping 70 percent of the time.

While most managers believe strategy is an inherent factor in their organization’s success, several studies also document the support for this claim. One study concludes that, “strategy has a positive and significant effect on a firm’s performance. Specifically, it is found to influence both the growth and profitability of a firm.” Another study summarized its findings as, “strategy contributes to profitability differences between successful and unsuccessful companies.” Finally, a ten-year study out of Harvard Business School showed that firms with clearly defined and well-articulated strategies on average outperformed competitors by 304 percent in profits, 332 percent in sales and a whopping 883 percent in total return to shareholders. Yes, strategy does matter and the ability to think strategically will make or break it.

When poor decisions about strategy are made and an organization goes through a revenue stall, it’s been shown that, on average, low performance continues for more than 10 years. Unfortunately, this prolonged period of poor performance can lead to bankruptcy. Research on 750 bankruptcies during a 25-year period showed that the number-one factor behind these bankruptcies was bad strategy. Contrary to popular opinion, the researchers attributed the failures to flaws in the strategies themselves, not to poor execution of the strategies.

The Rise of Strategic Thinking

To more effectively develop and execute strategy, it stands to reason that we need to better understand it. In order to better understand it, we need to be skilled at thinking about it. And for a decade, strategic thinking has been cited as the number one most valued skill in executives by numerous sources including the Wall Street Journal, Chief Executive Magazine, HR Magazine and the American Management Association. Procter & Gamble’s former Chief Executive AG Lafley supported these research findings when he wrote, “The explicit goal was to create strategists at all levels of the organization … The idea is to build up strategy muscles over time, in different contexts, so that as managers rise in the organization, they are well prepared for the next strategic task.”

As a manager assumes higher levels of responsibility, he or she makes decisions involving larger sums of resources. These resource allocation decisions have an exponentially greater effect on the organization’s business outcomes, ranging from enduring success to the finality of bankruptcy. Therefore, the need to be a sound strategic thinker increases as a leader rises to the C-suite. Harvard Business School associate professor Boris Groysberg’s research confirms this premise: “One theme that ran through our findings was the requirements for all the C-level jobs have shifted toward business acumen. To thrive as a C-level executive, an individual needs to be a good communicator, a collaborator and a strategic thinker. For the senior-most executives, functional and technical expertise has become less important than understanding business fundamentals and strategy.”

Results from the Corporate Board of Directors survey confirmed that the number-one trait of active CEOs that make them attractive board candidates is strategic expertise. Not only does a leader need to be able to generate fresh strategic insights on a regular basis, he or she needs to be able to harness insights from their employees’ best thinking as well by facilitating strategy conversations. The ability to then package their strategic thinking and communicate strategy in a simple, persuasive and concise manner is just as critical. Former Pepsi CEO Indra Nooyi concludes, “To me, the single most important skill needed for any CEO today is strategic acuity.”

Great strategy doesn’t magically emerge from Excel spreadsheets or elaborate PowerPoint decks. It comes from managers who can think strategically. It inspires confidence, sets direction, and creates competitive advantage. Most important, great strategy is developed by great strategists. Is your executive leadership team comprised of great strategists?

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