Research on what drives a company’s success

PwC’s Strategy& surveyed more than 700 executives and found that a capabilities-driven approach to value creation leads to higher returns, on average, than other ways of doing strategy.

Capabilities-driven companies owe their success to having a truly distinctive way of providing value, a powerful set of capabilities, and coherence between their strategy and capabilities. By contrast, companies that compete on the basis of economies of scale, lucrative assets, or diversification fare less well. The survey also finds that companies with a clear identity — standing for something unique and consistent over time — tend to perform better than others, and that a capabilities-driven approach helps them develop that identity.

Read more about the survey results

Research on what drives a company’s success

Key findings

  • Companies have widely
    divergent views about how
    to chase success
  • Companies competing with a
    capabilities-driven approach
    have a clearer identity
  • Companies with a clear
    identity enjoy
    stronger performance
  • Companies competing with a
    capabilities-driven approach
    are more successful
  • Strategists’ biggest problems
    are having too many
    disconnected initiatives

Exhibit 1

We asked survey participants to identify the most important drivers of success for the three companies they know best among the 15 largest in their industry. We found that no approach is clearly dominant.

Pursuing economies of scale was perceived to be the most important success driver (score of 2.0), followed by powerful capabilities (1.8) and lucrative assets (1.6).

Exhibit 6

Companies with a clear identity compete based on the same three capabilities-related factors that drive success in general: a truly distinctive way of providing value, powerful capabilities, and coherence

Companies that base their success on assets, scale, and diversification are perceived to have a weaker identity.

Exhibit 5

We asked survey participants to tell us how clear an identity the various companies in their industry have — that is, how clearly those companies are perceived to stand for something unique and consistent over time.

Their responses helped to demonstrate that a clear identity correlates with performance—the stronger the identity, the higher the company’s three-year TSR growth. The effect is significant: Companies whose identity is perceived to be clearer than the average have a three-year TSR growth that is more than 3 percentage points higher than that of their peers.

Exhibit 4

The more a company’s success is perceived to be capabilities-driven—based on a clear way to play, powerful capabilities, and coherence—the more successful the company tends to be (as measured by TSR growth over three years).

Companies that are seen as most consistently following such a capabilities-driven approach include Apple, Caterpillar, Honda, Petro China, SAP, Standard Chartered, Toyota, and Volkswagen.

Companies that are seen as competing on the basis of assets, scale, and diversification have significantly lower TSR growth, on average, than companies that follow a capabilities-driven approach.

Exhibit 7

Two issues emerged as the most problematic when we asked survey respondents to rate the significance of strategic issues: having too many strategic initiatives that are disconnected and focusing too much on short-term performance. In other words, companies aren’t addressing the fundamental questions of strategy that will allow them to create long-term success.

Contrary to common belief, insufficient market focus does not appear to be the problem — only 7 percent of respondents consider “ignoring external market forces” to be the most significant issue.

Key publications

Strategy That Works
Winning companies don’t follow conventional wisdom. They apply five acts of unconventional leadership that allow them to close the strategy-to-execution gap.
The Coherence Premium
Harvard Business Review
Sustainable, superior returns accrue to companies that focus on what they do best. Companies that align their differentiating capabilities with the right external market position enjoy a coherence premium.
The Essential Advantage
Based on extensive research, The Essential Advantage helps you construct a strategically coherent company in which the pieces reinforce one another instead of working at cross-purposes.
The New Supercompetitors
Companies that realize the power of their capabilities can shape how industries evolve.