In an increasingly uncertain business environment, with rapid changes in both the technical and competitive landscape, strategy matters more than ever. Strategy to organizations is like a compass to sailors; it provides direction and helps with navigation.

These days, senior executives in organizations recognize and understand the importance of strategy formulation and execution. However, many admit their organizations fall short. According to a study conducted by the Economist Intelligent Unit in 2013, the average of failed strategic initiatives was 44%. Unsurprisingly, the study also found that companies who reported poor strategy formulation and execution had weaker financial results.

Strategy formulation and strategy execution are distinct stages. Both stages are highly integrated and equally important. You can have a solid strategy with poor execution, and you can have an effective execution with a flawed strategy; both will lead to undesirable results.

Strategy formulation is the first stage in strategy development. The focus during this stage is on assessing objectives and strategies currently in place and then determining alternatives to make the organization more successful. To formulate a strategy, three key elements to consider are:

  1. Build your Vision. Any compass has one end of the needle always pointing north. Your vision is the needle that points north at all times. The vision answers, “Where are we going?” Strategy is formulated to answer, “How do we get there?” Steering the ship without knowing the end point can take you off course.
  2. Scan your environment and surrounding. Put equal weight between understanding external factors such as competitors, industry, and stakeholders, and understanding internal factors focusing on organizational culture, common attitudes, values, and beliefs. The problem can be in the fit between the strategy and the environment.
  3. Gather input from all your business functional units. Understand their goals and strategies. Usually functional units have shorter time specific goals involving operations. A micro level analysis of daily activities that each functional area carries out will feed into the long term strategy. This information is valuable to assess how far the organization is from achieving its goal.

An organization’s success is highly dependent on its strategy and how it is carried out through strategy formulation and strategy execution. Start with formulating a sound strategy. Use your vision to describe where the organization is going. Understand external and internal environments and consider the goals and daily activities of the organization’s functional units. This is how you build a solid foundation for the next stage, strategy execution.

This originally appeared on LinkedIn.

Look out for my next blog post on Strategy Execution.