One of us (Paul) is a strategy scholar and economist; the other (Amy) studies organizational behavior and operations management. We came together to consider why strategy so often breaks down in the execution stage. While conducting research on recent dramatic cases of strategic failure in different industries, involving vastly different business models and strategies, we discovered a common pattern: What started as small gaps in execution spiraled into business failures when initial strategies were not altered based on new information provided by experience. These companies’ strategies were viewed by their top executives as analytically sound; performance gaps were blamed on execution.
Take the notable failure at Wells Fargo last year. Executives formulated a distinctive strategy of cross-selling, which had much to recommend it. Selling additional products to current customers leverages the costs of establishing those relationships in the first place, and serving more and more of their financial service needs (to grab a greater “share of wallet”) is appealing, in theory. Wells Fargo was even good in implementing the strategy — up to a point.
Yet the strategy eventually hit the realities of customers’ finite wallets (their spending power) and real needs.
Cementing the business failure, salespeople appeared to believe that senior managers would not tolerate underperformance, and found it easier to fabricate false accounts than to report what they were learning in the field. The widespread nature of the behavior strongly suggests that the fraud was not the result of some corrupt salespeople. Rather, it points to a system set up to fail — by the pernicious combination of a fixed strategy and executives who appeared unwilling to hear bad news. (From the perspective of the senior management at many companies, missing sales targets is a failure in the execution of an analytically sound strategy.)