Senior executives generally agree that crafting strategy is one of the most important parts of their job. As a result, most companies invest significant time and effort in a formal, annual strategic-planning process that typically culminates in a series of business unit and corporate strategy reviews with the CEO and the top management team. Yet the extraordinary reality is that few executives think this time-consuming process pays off, and many CEOs complain that their strategic-planning process yields few new ideas and is often fraught with politics.

Why the mismatch between effort and result? Evidence we culled from research on the planning processes at 30 companies (see sidebar, "About the research") and work with more than 50 additional companies points to a common dispiriting explanation: the annual strategy review frequently amounts to little more than a stage on which business unit leaders present warmed-over updates of last year's presentations, take few risks in broaching new ideas, and strive above all to avoid embarrassment. Rather than preparing executives to face the strategic uncertainties ahead or serving as the focal point for creative thinking about a company's...