Competitive advantage is the essential ingredient of any strategy. Yet for many companies, advantage is an elusive goal. The results of a recent McKinsey survey suggest one reason: just 53 percent of executives characterize their companies’ strategies as emphasizing the creation of relative advantage over competitors; the rest say their strategies are better described as matching industry best practices and delivering operational imperatives—in other words, just playing along.

In this survey,¹ executives around the world answered a series of questions that allowed us to test how fully their companies’ business unit strategies pass ten tests that we believe, based on years of work with clients and academic research, make for a good strategy.² The first—whether the strategy will beat the market by creating competitive advantage—is comprehensive. The remaining nine tests disaggregate the picture of a market-beating strategy, assessing how the strategy positions the company in the market, what level of insight the strategy rests on, and what the implementation plan involves. Nearly two-thirds of respondents indicate that their companies pass three or fewer of the ten tests, meaning that our description of the test closely describes a particular element of their strategies (Exhibit 1). And only 2 percent of respondents say their companies pass nine or all ten tests.