All talk, no action: why company strategy often falls on deaf ears

Having a sound corporate vision is a key driver of a company’s success, but a recent study suggests that most employees are ignorant of corporate strategy.

Corporate consultants often say that a company’s success depends not only on having a clear vision, but the ability to articulate it to all levels of staff.

But how many employees know or understand the overarching strategy of their company? How many know what the priorities are so that they can make the important trade-offs when dealing with their subordinates, customers or other stakeholders?

This issue is made even more important when we consider the need for companies to have multiple strategies: a corporate strategy for the business, for instance, and an environmental/social responsibility strategy for society.

If these strategies are important to performance, then the manner in which they are communicated to individual employees are critical. My colleagues and I decided to investigate this more formally.

We looked at employees in 20 major corporations in 5 industries in Australia. All of these companies have clear competitors (competition is oligopolistic) and large market shares. All of these companies have articulated public strategies, and all have an environmental sustainability and social responsibility strategies, publishing reports annually that outline the good that they do. Individuals in the study were presented with six strategy statements and had to indicate which of these fit their firm, as well as their three major competitors. This exercise was repeated with individuals indicating the strategies of firms in an industry in which they did not compete (banking employees might evaluate the strategies of mining companies).

The findings were depressing. Individuals were presented with six different strategy statements, and had a 16.67% chance of getting it right — just by sheer luck. As the table below reveals, this is approximately what is found when the individual is attempting to distinguish amongst different strategies from a random industry.

The percentage of employees that correctly identified corporate and environmental strategies within and outside their industry of employment. Tim Devinney

Overall, we found that only 29.3% of employees could correctly match their company to its publicly espoused strategy. 70% of employees could not identify the publicly presented corporate strategy of their employer. When we look at the environmental strategy of the firm, the numbers are even worse.

At one level, this is a serious indictment on the importance of publicly stated strategies and their value as points of guidance for employees. This is reinforced by the fact that the 20 companies examined all performed well, were leaders locally and/or globally, had won many awards for environmental and social performance, and even touted these in public reports (which all the companies published). What we are seeing is that even for the best firms, the “vision thing” may not matter all that much.

Questions asked to employees about corporate and environmental strategy within and outside their industry of employment. Tim Devinney

But we also see some interesting differences and opportunities for improvement.

Some employees do a better job at understanding the differences between their firm and competitors. These individuals are also better at being able to explain their company strategy in words to others. These people may be the key strategic enablers.

It seems that middle managers are better at understanding the strategy than lower-level staff. This may be all that is necessary. Lower-level staff may simply need to understand their tasks and not why those tasks matter. It may be delusional to believe that staff or line workers need to be cognisant about higher-level strategic issues to be effective, although this runs counter to those believing strongly in the value of “engagement”.

There’s no doubt that training matters. Firms with more direct training initiatives seem to have employees who are better able to recognise what the firm views as its goals. What matters most is documentation that outlines clearly how more vaguely articulated strategies are to be implemented – note that these are not mission statements, statements of value or codes of conduct but actual “how to” manuals.

But rewards can play an important role. When we asked individuals about what determines their pay and their performance appraisal, items such as “meeting the organization’s sustainability goals” and “meeting the company’s social responsibility goals” came out dead last. No wonder that employees spend no time worrying about whether or not they know the company’s sustainability strategy.

It’s clear that some companies are better at articulating business strategy than others, and some firms might possess employees who are better at recognising their company’s strategies. Yet neither metric seems related to performance.

What are the implications of this? It’s important to recognise that the lack of an understanding of the firm’s sustainability strategy was more than part of a larger issue. The reality is that employees seem to be more cognisant of the firm’s corporate strategy than its environmental strategy, with a random employee being clueless about both. This may imply that most firm’s environmental strategies are so loaded with general motherhood statements that there is not much that distinguishes them from the “feelgood” reports of their competitors.

However, if we are to avoid employee cynicism and truly motivate individuals to do well for both their companies and our society, then managers need to work harder not just in crafting these strategies, but ensuring employees have the enthusiasm and instruction to implement and execute them as well.