Is your small business struggling to set a clear growth strategy and prioritize all the things you need to do to execute that strategy? If it’s any comfort, you’re not alone. In a recent survey by Booz & Company, the majority of nearly 2,000 executives surveyed admitted that their companies lack “coherence.” In other words, they not only struggle with setting a clear strategy, but they also face difficulty ensuring that day-to-day decisions are in line with their strategy and allocating resources in a way that supports the strategy.

Coherence is important, Booz & Company found, because companies with greater “coherence” -- that is, with strategy, capabilities and product offerings in synch -- performed better overall, whatever their industry.

“The survey results tell us that deciding on priorities is a huge issue for companies -- and that actually linking priorities to decisions is a hurdle that few companies get past,” said Paul Leinwand, co-author of The Essential Advantage: How to Win With a Capabilities-Driven Strategy (Harvard Business Review Press). “We see this ‘incoherent’ operating environment across industries and geographies, among all types of companies. It’s draining -- and forcing companies to pay a significant penalty [that we call] the incoherence penalty.”

What are some of the issues facing companies?

Nearly half of executives (49 percent) admitted their company doesn’t have a list of strategic priorities.

While most executives say their company has a clearly stated set of capabilities, only one-third of executives say those capabilities support the company’s strategy and the way it creates value.

Sixty-four percent say their company has too many conflicting priorities.

“Too many companies grab too hastily for what seems like the next answer to growth. They don’t have a solid framework to decide which set of opportunities will lead to sustainable success,” said said Booz & Company Managing Director and co-author Cesare Mainardi. “They end up stretched thin, trying to play in too many disparate markets.”

Does this sound familiar? It’s all too easy for a small business (or, as the survey shows, any size business) to fall into this trap. Let’s look at how companies surveyed choose their strategies:

Most executives (57 percent) say their company creates strategy by either “pursuing a broad portfolio of strategic options and spreading the risks” or by “choosing an attractive market and figuring out how to be successful in it.”

Fewer than half (43 percent) say their company’s strategy starts from the inside -- looking at what the company excels at and finding markets that capitalize on those capabilities.

In contrast, Mainardi said, coherent companies follow a clear path to success: “They define the fundamental identity of their company by developing a clear idea of what it does best and how it creates value -- and focus investment on the capabilities that matter. Growth then follows as a consequence of the strategy, rather than as a set of separate initiatives.”

The survey also showed that coherence has its rewards:

Executives whose companies have very few (one to three) strategic priorities are the most likely to say their companies have above-average profitability and revenue growth (compared to those having more strategic priorities or no priority list at all).

Executives who say their company’s capabilities support its strategy are most likely to have above-average profitability and revenue growth.

Selecting a strategy that builds on your strength and remaining focused on that strategy instead of chasing after new opportunities is difficult for a small business at the best of times -- but especially so in today’s economy, when the temptation to grasp at any chance for profit is great. However, this survey reinforces how important strategy is to your business’s long-term success.

You can view the full survey results (and take a short test to determine how “coherent” your business is) at the Booz & Company site.

Courtesy of Small Biz Trends